What happens if you do not inform your tax regime choice to your employer?

Time of India

22-04-2025

By now, salaried employees must have been asked by their employers to choose their preferred
tax regime
- new or
old tax regime
- for the purpose of TDS from salary. It is important to inform your
employer
of your preferred tax regime on time to ensure that a lower tax rate is applied to your salary for the financial year 2025-26.
Income Tax Guide
Income Tax Slabs FY 2025-26
Income Tax Calculator 2025
New Income Tax Bill 2025
Understanding the income tax laws applicable for the current financial year (FY 2025-26) is crucial for making an informed decision when choosing between the new and old tax regimes. Starting April 1, 2025, no tax will be payable if your taxable income does not exceed Rs 12 lakh, and the highest tax rate of 30% will apply to taxable incomes over Rs 24 lakh under the
new tax regime
. The tax rates and slabs of the old tax regime remain the same as in the previous year.
Also read:
How salaried employees can choose tax regime for TDS on salary?
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What happens if you don't inform your employer about your preferred tax regime?
Salaried employees should communicate their preferred tax regime on or before the due date, as communicated by their employers.
According to income tax laws, if a salaried employee fails to inform the employer about the preferred tax regime, the employer will deduct tax from the employee's salary according to the income tax slabs under the default tax regime.
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The government has made the new tax regime the default option from April 1, 2023. The Central Board of Direct Taxes (CBDT) issued a circular in April 2023 to guide employers on the process of deducting TDS on salary, as the new tax regime becomes the default tax regime. As per the circular, employers are required to ask each of their employees about their preferred tax regime for tax deduction from salary. If an employee does not notify the employer of the preferred tax regime, tax deduction at source (TDS) will be made as per the default tax regime, which is the new tax regime. This essentially means that if an employee does not inform his/her employer about his/her choice of tax regime, the new tax regime will automatically apply for TDS purposes.
Excess tax may be deducted; May have to claim a refund when filing ITR for FY2025-26
A salaried individual may find that he/she can save more tax under the old tax regime. However, if the employee didn't inform his/her employer about the chosen tax regime for TDS deduction on salary, then higher tax will be deducted from salary, and the salaried individual will have to claim an
income tax refund
when filing ITR for FY2025-26. Further, money will be stuck with the income tax department till the salaried individual files an ITR next year to claim a refund, and they accept the same after the processing of the income tax return.
However, if an employee finds that he/she would pay less tax under the new tax regime and prefers to choose it over the old regime, then the employee won't lose out by not informing the employer. This is because if the employee doesn't inform the employer of his/her choice then he/she would get the new tax regime by default anyway. Even so, it is always better to inform the employer of one's choice of tax regime.
Can you change the tax regime during the financial year?
The CBDT's 2023 circular remains silent on whether salaried individuals can change their tax regime for the purpose of TDS from salary during a financial year. According to tax experts, the decision to allow employees to change their tax regime in the middle of a financial year rests with the employer. Usually, it is seen that the employers do not give employees the option to switch tax regimes during a financial year, as it complicates the calculation of taxes under different regimes and the corresponding tax deductions.
What if you change jobs during a financial year?
During a financial year, a salaried employee may switch jobs. However, if he had opted for the old tax regime with the old employer, can he select the new tax regime with the new employer or vice versa?
Tarun Kumar Madaan, a practising chartered accountant, says, "You can switch tax regimes when changing employers. Each employer uses your declaration to deduct TDS based on your preferred tax regime at that point in time. There is no restriction on informing your new employer of a different regime, even within the same financial year. The declaration to employers is solely for TDS purposes. When you join a new company, you are required to fill out a declaration form to indicate your preferred tax regime for salary processing and TDS calculations. This choice is independent of what you selected with your previous employer."
Madaan further states, "Switching regimes mid-year, however, can create some complexities. Your old employer might have deducted TDS according to the old regime, while your new employer will calculate TDS based on the new regime. If an employee changes jobs during the year, they should provide their current employer with the details of their salary income from the previous employer, along with the tax that has already been deducted, so that taxes can be deducted appropriately by the current employer. Therefore, the new employer will consider your previous salary and the taxes already deducted when calculating your remaining tax liability."
"You should share your full salary and TDS details from your old employer; relieving documents usually contain this information. Clearly communicate your tax regime change to your new employer's payroll team. Review your tax projection mid-year to ensure you're on track. The final selection of the tax regime for the entire year is made when you file your income tax return (ITR). When filing your ITR, you have the flexibility to choose either the old or new regime, regardless of what you declared to one or more employers during the year," Madaan adds.
Deductions under the new tax regime for salaried employees
Under the new tax regime, your employer will offer you two tax saving deductions-a standard deduction of Rs 75,000 and the employer's contribution to the NPS account (if opted earlier). A deduction of 14% of the basic salary will be deposited into the NPS account under the new tax regime.