It's that time of the year. The accounts department must be asking for investment proofs. If for some reason you could not submit your investment proofs and the deadline is over, don't worry! You still have hope.
"If you have not submitted your investment proofs, the employer has no choice but to deduct taxes and report them in the TDS section. However, if you make the investments before March 31 and declare it while filing the ITR for this year, you can apply for a tax refund," says Archit Gupta, founder & CEO, Cleartax.
Making tax-saving investments available under Chapter VI A of the Income-Tax Act will help taxpayers reduce taxable income. These include deductions under sections 80C, 80CCC, 80CCD, 80CCE and 80D. Declare your investments as you file ITR for FY21 in the Assessment Year 2021-22. You will get tax refund on the same. The deadline to file the ITR for FY21 is July 31, 2021.
New versus old tax regime
If you have no plans to make tax-saving investments, you may opt for the new tax regime. From FY21 onwards, taxpayers have two options. Either go for the old tax regime that offers deductions and exemptions or the new tax regime with lower tax rates in different slabs, but barely any deductions or exemptions. However, if you fall under higher tax brackets of 20 per cent or 30 per cent, you must make efforts to take advantage of the old tax regime to reduce your tax outgo.
"For people earning less than Rs 7.5 lakh, new tax regime is better. But, if your annual income is more than Rs 7.5 lakh, it is worth the time and focus to identify which option is better. Generally, old tax regime turns out to be better for people in higher tax brackets," says Gupta of Cleartax.
Switching between two tax regimes
Suppose you have opted for the new tax regime this year, can you switch back to the old tax regime next year? The answer is yes and no depending on your source of income.
"If you are a salaried employee, you can switch between the two regimes every year. You just have to inform your employer. However, if you earn income from business, and if you have chosen the new regime, you can't switch back. So, if you run a business, be careful before you opt for the new tax regime," says Gupta.
"If you stop doing business and become a salaried person, you can move back to the old tax regime," he adds.
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