If an employee chooses the old tax regime, the employer deducts TDS based on the employee’s exemptions and deductions. Under the old regime, taxpayers are eligible for several exemptions and deductions, including Section 80C, Section 80D, and home loan deductions.
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Old tax regime vs new regime: Companies have started asking employees for investment proof for the financial year 2025-26. The question is whether employees should remain in the old regime or shift to the new regime? This impacts the employee’s tax calculations during the financial year. The company’s finance department deducts TDS from the employee’s salary every month based on this.
When an employee selects the old tax regime, the employer deducts TDS based on their exemptions and deductions. Under the old regime, taxpayers were eligible for various exemptions and deductions, including Section 80C, Section 80D, and home loan deductions. These deductions and exemptions are not available to taxpayers under the new regime.
Gopal Bohra, Partner (Tax), NA Shah Associates, said, “Under the new tax regime, taxpayers get a standard deduction of Rs 75,000. Tax rates are also lower. Under the old regime, a salaried taxpayer with a total income of Rs 25 lakh in FY2025-26 would benefit only if he claims a total deduction of up to Rs 8 lakh.” This means that if the taxpayer’s total deduction is less than Rs 8 lakh, the new regime will be suitable for him.
Under the new tax regime, income up to ₹12 lakh per annum is exempt from tax. A standard deduction of ₹75,000 is available. Employer contributions to provident fund and NPS accounts are taxable. Salaried taxpayers with annual incomes exceeding ₹12.75 lakh are taxed at the slab rate.
The old regime is beneficial for employees who incur certain monthly expenses. This includes house rent, home loan EMIs, investments in tax-saving instruments, etc. This neutralizes the disadvantages of higher tax rates.
Employees who do not claim deductions or claim fewer deductions are increasingly interested in the new regime. Mrinal Mehta, CA and Joint Secretary of the Bombay Accountants Society, said, “The new regime is beneficial for employees who do not claim deductions and exemptions. The lower tax slabs in the new regime result in significant savings.”
Taxpayers using the old tax regime are required to submit documents to support their claims. The company requests the following documents:
-House Rent Allowance (HRA)
–Rent Receipts
Rental Agreements
–Landlord’s PAN (if annual rent exceeds Rs. 1 lakh)
-Section 80C Investments (up to Rs. 1.5 lakh)
–Provident Fund Contribution Statement
–Life Insurance Premium Receipts
–ELSS Mutual Fund Investment Proof
–PPF Deposit Receipts
–Children’s Tuition Fee Receipts
–Health Insurance (Section 80D)
–Health Insurance Premium Payment Receipts
–Home Loan Benefits
–Bank Interest Payment Certificate
–Principal Payment Certificate (if claiming under Section 80C)
-Leave Travel Allowance (LTA)
–Travel Tickets or Boarding Pass
–Proof of Travel Expenses (as per company policy)
-Other Deductions
–Education Loan Interest Certificate
–Donations Eligible under Section 80G
Taxpayers using the new income tax regime are not required to submit these proofs. This is because the company’s finance department does not consider deductions and exemptions when deducting TDS.
