If you have made investments in some tax-saving instruments but realise that you won’t be able to claim the deductions against them since you missed intimating your employer about opting for the old tax regime during the year, there is a way out. It is vital to note that you can still file your income tax return (ITR) under the old tax regime and claim these deductions as a tax refund.
However, you will need to opt out of the new tax regime.
Many taxpayers are facing a dilemma about choosing the ‘right’ income tax regime. Between the old and new tax regimes, the old tax regime allows most deductions and exemptions but charges tax at a higher rate. On the other hand, the new tax regime charges tax at a lower rate but does not permit exemption on account of such instruments as NSC, KVP, ULIP or PPF, among others.
The new tax regime became a default tax regime from FY 2023-2024 (AY 2024-25) as per the amendment in Finance Act 2023. This means any taxpayer who wants to claim 80C and 80D deductions is supposed to opt for the old tax regime specifically.
Want to opt for the old regime?
Salaried taxpayers: If you are a salaried employee, you must inform your employer about the tax regime you want to opt for during the year. If the employee does not do so, it will be assumed that the employee continues to be in the default tax regime and has not exercised the option to opt out of the new tax regime.
Taxpayers who do not earn income from business or profession can simply tick “opting out of new regime” in the ITR form without filing Form 10-IEA.
Self-employed: Taxpayers who have “income from business and profession” are required to furnish Form 10-IEA on or before the due date for furnishing the return of income.
Which regime is good for you?
Which regime suits you more depends on your total income and investments. Experts argue that taxpayers who have made considerable investments in tax-saving instruments should opt for the old tax regime, whereas others can opt for the new tax regime and make the most of lower tax rates.
“Taxpayers having significant deductions/ exemptions, such as provident fund, ELSS, NPS, Mediclaim, Home Loan, and HRA should opt for the old tax regime. The choice of old or new tax regime might vary as per total income and deductions/ exemptions available with the taxpayer,” explains CA Pratibha Goyal, partner, PD Gupta & Company, a Delhi-based CA firm.
“For example, a taxpayer having a CTC of up to ₹7 Lakh can always go for the new tax regime as the person is not required to make any tax-related investment for saving income tax. But for a taxpayer with a higher CTC of, say ₹20-50 lakh, should go for the old tax regime if Income tax deductions/exemptions are more than ₹4,33,333,” she further adds.
Echoing similar sentiments, CA Paras Gangwal, Founder of ThetaVega Capital, says, “You should go for the old tax regime if you are eligible to claim substantial exemptions via insurance premium, PPF, home loans, or education fees. This regime suits taxpayers who actively invest in tax-saving instruments, offering a tailored approach to reducing tax liability while encouraging disciplined financial planning and long-term wealth creation through government-recognised savings schemes.”
The Income Tax (I-T) department has shared a tax calculator to help taxpayers calculate their tax liability under both regimes.
On this calculator, you can enter your income and investment details to assess the tax component under both options. You can choose the option that gives you a lower tax liability.