The new regime is the default now — which changes your payroll year
The default income-tax regime offering lower slab rates in exchange for forgoing most exemptions and deductions.
The Trade
Lower slab rates in exchange for giving up HRA, LTA and most Chapter VI-A deductions.
It Is The Default
An employee wanting the old regime must opt for it. Silence means the new regime applies.
Ask First
Regime choice determines whether investment declarations are worth collecting at all.
The new tax regime offers lower slab rates in exchange for giving up most exemptions and deductions — house rent allowance, leave travel allowance, and the majority of Chapter VI-A investment deductions.
It is now the default. An employee who wishes to be taxed under the old regime must actively opt for it, and an employee who says nothing is taxed under the new one.
For payroll this changed the shape of the year. The employer must collect each employee's regime choice before computing tax deducted at source, and that choice then determines whether investment declarations are worth gathering at all. Collecting Form 12BB declarations from an employee on the new regime produces paperwork that changes no number and wastes the employee's time as well as yours.
Which regime leaves an individual better off depends entirely on how much they actually claim — not on how much they could theoretically claim. Employees with substantial home loan interest and full use of the investment limits are often still better off under the old regime. Employees who claim little are usually better off under the new one.
It is an arithmetic question, answered per person. The honest thing an employer can do is show both computations and let the employee choose, rather than advising a direction. Payroll teams are not tax advisers, and a recommendation that turns out badly is remembered.
New Tax Regime FAQs
Which regime is better?
It depends on what the individual actually claims. Those with large deductions often do better under the old regime; those claiming little do better under the new one. Show both figures rather than advising.
When must employees choose?
Collect the choice at the start of the financial year, before computing TDS. Employees may generally reconsider at the time of filing their return, subject to the applicable rules.
Do we still need investment declarations?
Only from employees on the old regime. Collecting them from employees on the new regime is work that changes nothing.
Can an employee switch regimes mid-year?
Their choice for payroll purposes is made for the year, and the final position is settled at filing. Switching repeatedly through the year makes the monthly computation meaningless.
Which regime should we apply if the employee says nothing?
A default applies where no choice is communicated, and it may not be the one that suits them. Prompting for a choice early is worth more than any calculator you can offer them.
Does the regime affect what proofs we collect?
Substantially — many deductions that drive proof collection are unavailable under the concessional regime. Collecting proofs from employees who cannot use them wastes everyone's time.
Stop working this out by hand
Klok applies these rules on every payroll run, from your own attendance and salary data, with the working shown.