Comparing Tax Regimes: Which One Should Salaried Workers Select When Providing Investment Evidence?

 

As organizations start gathering investment documentation for the fiscal year, salaried workers confront a choice that directly impacts their net salary and annual tax obligations. The decision revolves around sticking with the traditional tax system or transitioning to the updated one. This selection is far from routine; it shapes how taxes on earnings are determined throughout the year and whether typical tax-reducing investments are incorporated during tax deduction at source (TDS).

The Importance of Choosing a Regime Now

Selecting the traditional regime allows employers to calculate TDS while incorporating allowable exemptions and deductions. In this system, individuals can claim various benefits, such as interest on home loans up to Rs 2 lakh for self-occupied properties, House Rent Allowance (HRA), Leave Travel Allowance (LTA), investment-related deductions under Section 80C, and health insurance premiums under Section 80D. These options are unavailable in the revised regime. "The revised regime offers a standard deduction of Rs 75,000 and reduced tax rates without the need for supporting documents. To illustrate, the threshold where deductions in the traditional regime break even might reach Rs 8 lakh for someone earning Rs 25 lakh in total during FY 2025-26," explained Gopal Bohra, Partner - Tax at N.A. Shah Associates.

Thus, if an individual's combined deductions fall below Rs 8 lakh, the revised regime could prove advantageous; conversely, if deductions surpass this amount, the traditional regime remains preferable, Bohra added.

Tax Slabs Under the Traditional Regime

Income Bracket (Rs)	Tax Percentage
0 – 2,50,000	Nil
2,50,001 – 5,00,000	5%
5,00,001 – 10,00,000	20%
Above 10,00,000	30%

Details of the Revised Tax Regime

In the revised system, earnings up to Rs 12 lakh are exempt from tax. It provides modest relief through a Rs 75,000 standard deduction, plus tax advantages on employer contributions to provident funds and the National Pension System. That said, when taxable income crosses Rs 12 lakh, it falls under the relevant brackets and rates.

Tax Slabs Under the Revised Regime

Income Bracket (₹)	Tax Percentage
0 – 4,00,000	Nil
4,00,001 – 8,00,000	5%
8,00,001 – 12,00,000	10%
12,00,001 – 16,00,000	15%
16,00,001 – 20,00,000	20%
20,00,001 – 24,00,000	25%
24,00,001 and above	30%

Who Gains the Most from the Traditional Regime?

The traditional approach is ideal for workers with established financial responsibilities. Individuals handling rent payments, servicing home loans, or consistently channeling funds into tax-efficient options frequently amass deductions substantial enough to counterbalance the elevated bracket rates.

Reasons Behind the Rising Popularity of the Revised Regime

The revised system attracts those with minimal deductions to declare. "It favors employees uninterested in leveraging deductions and exemptions. The decreased brackets in this regime, relative to the traditional one, enable notable tax savings while streamlining filings and adherence," noted Mrinal Mehta, CA and Joint Secretary at the Bombay Chartered Accountants' Society.

Furthermore, the absence of extensive paperwork for employers makes it appealing to younger professionals from Generation Z, who prefer straightforward approaches, Mehta elaborated.

Standard Documents Submitted to Human Resources

Workers choosing the traditional regime must typically provide verifiable evidence to support their claims. Frequently requested items include:

• House Rent Allowance (HRA) 
• Receipts for rent o Lease contract
• Landlord's PAN (required if yearly rent tops Rs 1 lakh)
• Section 80C Investments (capped at Rs 1.5 lakh)
• Statement of Provident Fund (PF) contributions
• Receipts for life insurance premiums 
• Proof of ELSS mutual fund investments
• Deposit receipts for Public Provident Fund (PPF)
• Receipts for children's tuition fees
• Health Insurance (Section 80D)
• Premium payment proofs for health coverage of self and family
• Home Loan Advantages
• Lender's certificate for interest paid o Certificate for principal repayment (if deducted under Section 80C)
• Leave Travel Allowance (LTA)
• Tickets or boarding passes from travel o Evidence of travel costs (per organizational guidelines)
• Additional Deductions
• Certificate for education loan interest
• Proof of donations qualifying under Section 80G (where relevant)

Those selecting the revised regime usually skip these submissions, since exemptions and deductions aren't factored into TDS calculations. Only select benefits, like employer contributions up to 14% under Section 80CCD(2) and interest on loans for rented properties, remain claimable in the revised system.

Is It Possible to Alter the Regime Choice Later?

Salaried persons can pick their favored regime each year and adjust it during Income Tax Return (ITR) filing, irrespective of the TDS selection. Nevertheless, informing your employer of your ultimate preference in a timely manner prevents abrupt, significant TDS corrections at year-end.

Steps Employees Should Take Prior to Deciding

Before turning in investment evidence, salaried individuals ought to assess their tax burden under both systems using real earnings and deduction data. Resources and directives from the Income Tax Department can facilitate a well-reasoned evaluation.

Given the adaptable nature of the tax structure, the superior option hinges more on one's income composition than solely on rates. A standard HR process, if approached without thorough computation, could shape your financial landscape for the whole year.