What Salaried Employees Need to Decide This Year

As employers begin requesting investment declarations and proof submissions, salaried employees face a choice that directly shapes how salary tax is deducted throughout the year. The decision between the old and the new tax regime is no longer a formality handled by HR. It has a measurable impact on monthly deductions, year-end adjustments, and overall tax planning for the financial year.

This selection determines whether exemptions and deductions reduce taxable salary or whether tax is calculated using lower slab rates, with minimal paperwork. Choosing without running the numbers can lead to either an excess tax deduction or an unexpected balance payable at the time of filing the return.

What Is the Difference Between the Two Tax Regimes?

The comparison between the old and new tax regimes starts with how taxable income is calculated.

The old tax regime allows salaried individuals to reduce their taxable income through exemptions and deductions under the Income Tax Act. These include housing rent benefits, interest on housing loans, insurance premiums, and specified investments. Tax is applied after these reductions, but slab rates are higher.

The new tax regime follows a different structure. It applies lower tax rates across more slabs while removing most deductions and exemptions. Apart from a standard deduction and limited employer-linked benefits, taxable salary is calculated largely on gross income.

Both regimes are valid, and employees can choose either every financial year.

Why the Regime Choice Matters During Investment Proof Submission

The timing of this decision matters because employers deduct tax at source based on the regime declared by the employee.

When the old tax regime is selected, employers factor in declared deductions while calculating monthly TDS. Employees are required to submit documents as proof within set deadlines. Any mismatch between declared and actual deductions may result in revised tax deductions later in the year.

Under the new tax regime, TDS is calculated without factoring in most exemptions. Since documentation is not required in most cases, payroll calculations remain consistent across the year.

Although employees can change the tax regime when filing their return, an incorrect declaration during the year can disrupt monthly cash flow.

How Deductions Influence the Old Tax Regime

The old tax regime continues to work well when total deductions are high enough to offset higher slab rates. Common deductions include:

• House Rent Allowance for rented accommodation
• Interest on housing loans for self-occupied property
• Investments under Section 80C, such as a provident fund, PPF, or eligible mutual funds
• Health insurance premiums under Section 80D
• Education loan interest

Tax professionals indicate that for higher-income earners, deductions often need to cross a specific threshold to make the old tax regime financially viable. If actual deductions are lower than expected, the benefit of reduced taxable income may not outweigh the higher tax rates.

Income Slabs Under the Old Tax Regime

Under the old structure, tax is calculated using the following slabs after deductions:

• Up to ₹2.5 lakh: Nil
• ₹2.5 lakh to ₹5 lakh: 5%
• ₹5 lakh to ₹10 lakh: 20%
• Above ₹10 lakh: 30%

These rates remain unchanged, making deductions the primary deciding factor when evaluating the old vs. the new tax regime.

How the New Tax Regime Is Structured

The new tax regime simplifies salary taxation by applying lower rates across a wider income range. A standard deduction of ₹75,000 is available, and employer contributions to retirement accounts under specified sections are allowed.

Income up to ₹12 lakh is not subject to tax under the rebate provisions, provided the eligibility conditions are met. Beyond this level, tax is applied at the slab rates, with most exemptions not considered.

For individuals without major deductions, the new tax regime often results in predictable and stable tax deductions throughout the year.

New Tax Regime Slabs Explained

The new tax regime applies the following slab rates:

• Up to ₹4 lakh: Nil
• ₹4 lakh to ₹8 lakh: 5%
• ₹8 lakh to ₹12 lakh: 10%
• ₹12 lakh to ₹16 lakh: 15%
• ₹16 lakh to ₹20 lakh: 20%
• ₹20 lakh to ₹24 lakh: 25%
• Above ₹24 lakh: 30%

These rates apply directly to taxable income, making the calculation straightforward.

How Employees Typically Choose Between the Two

When evaluating old vs new tax regimes, income structure plays a larger role than headline tax rates.

Employees with rent payments, housing loans, or ongoing investment commitments often lean toward the old regime due to higher cumulative deductions. On the other hand, employees with fixed salary components and limited deductions may find the new regime easier to manage.

The new regime also reduces reliance on year-end proof submissions and follow-ups with HR, appealing to those who prefer minimal compliance steps.

Documents Required When Choosing the Old Tax Regime

Employees opting for the old tax regime are generally required to submit supporting documents such as:

• Rent receipts and rental agreements
• Landlord PAN details where applicable
• Insurance premium receipts
• Investment confirmation statements
• Home loan interest certificates
• Travel documents for leave-related claims

Failure to submit these documents within the employer's timelines may result in TDS being recalculated.

Employees selecting the new tax regime are usually exempt from these requirements.

Can the Tax Regime Be Changed Later?

Yes. Salaried individuals can switch between the old and new tax regimes when filing their income tax return, regardless of the TDS option chosen during the year.

However, changing the regime at the return filing stage may result in either additional tax payable or a refund. Correctly declaring the intended regime during payroll processing helps maintain consistent deductions and avoid year-end surprises.

How to Make the Decision With Clarity

Before finalizing the declaration, employees should:

• Calculate tax liability under both regimes using actual figures.
• Avoid assuming deductions that may not materialize.
• Factor in the monthly cash flow impact
• Use official tax calculators or verified computation tools.

The tax system allows flexibility, but the outcome depends on informed calculation. A single declaration during investment proof submission can shape salary taxation for the entire financial year.

Turning Tax Decisions Into Smarter Digital Workflows

Tax regime selection is no longer just a payroll task—it is a data-driven decision that depends on accuracy, timing, and system efficiency. At Convirzon, we build scalable IT solutions that help organizations streamline payroll processing, automate compliance tracking, and reduce manual dependency during critical declaration periods. From secure data handling to integrated reporting systems, our technology supports finance and HR teams in managing complex tax workflows with confidence. If your organization is looking to modernize how payroll and compliance data move across systems, Convirzon helps you take that next step with clarity and control.