Taxpayers opting for the old tax regime may still invest in tax-saving tools before March 31 as the end of the financial year 2024-25 approaches. It is expected that these investment tools will assist in claiming deductions. Tax liability should be evaluated before making investment decisions under the new tax regime, as it does not offer deductions for most savings schemes.
Employers Seeking Tax-Saving Proofs
Many companies ask employees to prove that they invested or spent money in a tax-saving way. If an individual fails to do so, you may be subject to full tax deductions at source (TDS) from your salary. If employees provide these documents earlier, their TDS calculations will reflect eligible deductions. Employees usually have until March to complete this process.
Key Tax-Saving Instruments
Under the Income Tax Act, multiple options are available for deductions, including:
Section 80C: National Savings Certificate (NSC), Public Provident Fund (PPF), Kisan Vikas Patra (KVP), Sukanya Samriddhi Yojana (SSY), and Senior Citizen Savings Scheme (SCSS)
Section 80CCC: Contributions to specified pension plans
Section 80CCD(1): Contributions to the National Pension System (NPS)
Section 80G: Donations to specified charitable institutions and relief funds
The combined deduction limit under Sections 80C, 80CCC, and 80CCD(1) is capped at Rs 1.5 lakh. Any investment beyond this threshold will not provide additional tax benefits.
New vs. Old Tax Regime
There are potential tax savings in the old regime and the new regime, so taxpayers must decide which to choose. An online calculator is provided by the tax department for comparing liabilities under both regimes. Under the new regime, employers can deduct up to 14 per cent of their basic salary for NPS contributions in addition to a standard deduction of Rs 75,000 on salary/pension income.
According to a Central Board of Direct Taxes (CBDT) release dated August 2, 2024, 72 per cent of taxpayers have opted for the new tax regime, while 28 per cent continue with the old regime.
Changing Tax Regime for TDS Purposes
Employees may switch tax regimes for TDS during the financial year, though many companies restrict mid-year changes due to administrative challenges. However, taxpayers retain the right to change their regime at the time of filing their Income Tax Return (ITR). The deadline to file ITR for FY 2024-25 is July 31, 2025. Missing this deadline restricts taxpayers from filing a belated return under the new tax regime only.
Consequences of Not Submitting Investment Proofs
Employees who do not submit tax-saving proofs under the old regime will see full TDS deductions without accounting for planned exemptions. While deductions can still be claimed when filing ITR, some, such as Leave Travel Allowance (LTA), must be processed through the employer. Large deductions claimed outside Form 16 may trigger additional scrutiny by tax authorities.
How TDS on Salary Is Calculated
Employers calculate TDS based on projected taxable salary and estimated deductions. At the start of the financial year, employees declare intended tax-saving investments, which are factored into TDS calculations. However, final proof must be submitted in the last quarter to ensure accurate deductions. Without this, employers deduct TDS without considering planned exemptions.
With the March 31 deadline fast approaching, taxpayers should finalize their investment decisions and submit proofs promptly to avoid unnecessary deductions and compliance issues.
