Understanding TDS And The Old Vs New Tax Regimes: Potential Issues And Tax-Saving Strategies For Filing ITR

Learn about potential issues while filing ITR under old and new tax regimes. Stay updated with the latest income tax news and tax-saving strategies.

new tax regime
  • TDS and tax regimes can impact your tax liability.
  • Taxpayers may face issues with deductions and exemptions.
  • Proper documentation is crucial when filing an ITR.
  • Understanding tax-saving strategies is essential.

Taxation is a crucial aspect of a nation's economy. Every taxpayer needs to be aware of the tax structure and their obligations. The Indian government has introduced a new tax regime to simplify the tax structure and reduce the tax burden on taxpayers. In this article, we will discuss TDS, the old and new tax regimes, potential issues in filing the ITR, and switching between tax regimes.

What is TDS?

TDS, also known as "tax deducted at source", is a tax that is deducted from the income of an individual or a company at the time of payment by the employer, or payer. TDS can be applied to different types of income, including salary, interest, rent, and professional fees.

What is the old tax regime?

The old tax regime consisted of different tax slabs with varying tax rates for different income levels. The tax rates under the old tax regime ranged from 0% to 30%, depending on the income level, starting at Rs. 2.5 lakh to upwards of Rs. 10 lakh per annum.

What is the new tax regime?

The new tax regime is a simplified tax structure introduced by the Indian government in the budget of 2023–24. In the new tax regime, the government has increased the minimum threshold of income to Rs. 3 lakh. Also, the highest tax rate of 30% is applicable to income levels above Rs. 15 lakh.

Also ReadNew Tax Regime Vs Old Tax Regime: Best Tax Planning Options to Maximise Tax Savings After the Union Budget 2023

What are the potential issues you could face while filing the ITR?

  • Deductions under Sections 80C and 80U

Under the old tax regime, taxpayers could claim various tax deductions and exemptions under Section 80C, such as investments in equity linked savings schemes (ELSS), public provident funds (PPFs), and insurance premiums, and Section 80U, such as medical expenses incurred for self or dependents. However, these deductions are not available under the new tax regime. There are lower tax rates offered, but there are no or limited tax exemptions and deductions. Taxpayers who are used to claiming these deductions may face difficulty adjusting to the new tax regime.

  • HRA tax exemption

House Rent Allowance (HRA) is an amount provided by employers to employees to cover their rental expenses. Under the old tax regime, taxpayers could claim an exemption for HRA received from their employers. However, under the new tax regime, this exemption is not available. Therefore, salaried employees who receive HRA may find themselves with a higher tax liability under the new tax regime.

  • Tax exemption on food coupons

Under the old tax regime, employers could provide food coupons to their employees as a tax-exempt benefit. However, under the new tax regime, this exemption is not available. Now, food coupons are considered a part of the taxable income. Therefore, salaried employees who used to receive tax-free food coupons may find themselves with a higher tax liability under the new tax regime.

  • Proof of deductions and investments

Under both the old and new tax regimes, taxpayers are required to provide proof of their deductions and investments to claim tax benefits. Taxpayers may face difficulty collecting and maintaining the necessary documents to support their claims. Taxpayers who fail to provide adequate proof may face additional tax liability or penalties.

Also ReadYou Can Get These Seven Tax Exemptions Even When You Choose The New Tax Regime

Can you switch between tax regimes?

Yes, taxpayers have the option to switch between the regimes every year based on their preferences and tax-saving potential. However, once a taxpayer switches to the new tax regime, they cannot claim any tax exemptions or deductions under the old tax regime.

Also Read: Budget 2023: Understanding The Switch Between New And Old Tax Regimes For Taxpayers

Which regime involves a lesser tax outgo?

The new tax regime involves a lesser tax outgo for taxpayers with lower income levels and those who do not have significant tax exemptions and deductions. However, taxpayers with higher income levels and significant tax exemptions and deductions may find the old tax regime more beneficial.

To sum up

To sum up, understanding the old and new tax regimes, TDS on salary, and potential issues while filing the ITR is crucial for every taxpayer. While the new tax regime offers a simplified tax structure with lower tax rates, especially for the low-income bracket, taxpayers must carefully evaluate their tax-saving potential before switching to the new regime. Keeping up with the latest income tax news and understanding the tax structure can help taxpayers save money and avoid any potential tax issues.



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