As the financial year comes to a close, salaried employees in Goa and Pune must make a well-informed decision regarding the selection of their tax regime. Understanding the implications and benefits of each regime is crucial in maximizing tax savings and avoiding potential pitfalls.

To ensure accurate tax deductions, employees must communicate their preferred tax regime to their employers before the deadline. Failure to do so may result in taxes being deducted as per the new regime rates. Employers have reached out to employees, seeking clarification on their tax regime choice.

It’s important to note that the choice of tax regime shared with employers directly affects the applicable withholding taxes on salary. Opting for the new tax regime means taxes will be deducted based on the new rates, without considering various deductions and exemptions available under the old regime. Conversely, selecting the old tax regime allows employers to deduct taxes after considering eligible deductions and exemptions.

Employees can benefit from exemptions such as HRA, LTA, and Standard Deduction, along with deductions under Section 80C for contributions to the Employees Provident Fund account. Additional deductions of up to Rs 2 lakh can be claimed on home loan interest payments, up to Rs 50,000 on payments towards the NPS account, and more.

Considering the numerous tax deductions and exemptions available, it is advisable for salaried employees in Goa and Pune to opt for the old tax regime. This choice ensures a higher monthly cash flow. However, if employees find that more taxes can be saved under the new regime, they can always switch when filing their Income Tax Returns.

Abhishek Soni, co-founder and CEO of Tax2win, emphasizes the need for early decision-making: “A taxpayer must decide which regime (old/new) to choose at the beginning of the financial year, enabling employers to provide accurate TDS and other deductions accordingly.”

Key Factors to Consider:

1. Income Level: The new tax regime offers lower tax rates, making it more beneficial for higher-income individuals. For example, under the new tax rates introduced in Budget 2023, an individual with an annual income of Rs 9 lakh will pay Rs 45,000 as tax, compared to Rs 92,500 under the old tax regime.

2. Investment Goals: Evaluate your investment goals before selecting a tax regime. The new tax regime suits individuals who do not plan to invest in tax-saving instruments. On the other hand, the old tax regime may be more beneficial for those aiming for retirement savings or building a long-term corpus through deductions offered for various investment instruments.

3. Deductions and Exemptions: The old tax regime allows for deductions of up to Rs 3.5 lakh, including Section 80C and Section 24(b) deductions. In contrast, the new tax regime offers fewer deductions and exemptions.

4. Simplicity: The new tax regime simplifies the documentation process by eliminating the need to calculate and claim deductions and exemptions. This streamlined approach enables taxpayers to file their ITR quickly.

To facilitate the decision-making process, here’s a comparison of the old and new tax regimes:

Old Tax Regime:

– Offers more deductions and exemptions to lower taxable income and tax liability.

– Allows deductions under Sections 80C, 80D, 80E, and others.

– Different tax rates and slabs from the new tax regime.

– Promotes savings for the future.

New Tax Regime:

– Lower tax rates for certain income slabs, resulting in lower tax liability for some taxpayers.

– Allows only a few deductions and exemptions available in the old tax regime.

– Simplified tax structure without the need to calculate deductions and exemptions.

– Higher take-home income due to no deductions or investments required.

Soni advises that salaried individuals can switch between the old and new tax regimes every year, depending on their income sources. By considering these factors and making informed decisions, salaried employees in Goa and Pune can optimize their tax planning strategies while complying with local tax regulations.