However, being an election year, the Budget 2024 will be presented in the middle of the year in which it will become effective, that is, for the ongoing financial year 2024-25. Will changes to the income tax slabs in Budget 2024 take effect on April 1, 2024, or another date? Could employers offer the option to choose the tax regime again after the changes are announced?
Also read: 6 things salaried taxpayers want from Budget 2024
Amarpal S. Chadha, Tax Partner and Mobility Leader, EY India, says, “Amendments introduced in the Budget to be presented in July 2024 will be effective from 1st April 2024 unless any other effective date is specified in the Budget document.”
Vishwas Panjiar, Partner, Nangia Andersen India, says, “If the intention of the government is to extend the benefit to individuals immediately, it may choose to make the amended relaxed provisions available for income earned in the current Financial Year 2024-25 i.e., from April 1, 2024, onwards.”If there is any new tax relief given in the new tax regime in the budget, employees may immediately benefit. Salaried individuals already under the new tax regime will see an immediate reduction in their monthly tax (TDS) and corresponding increase in take-home salary.
Will you get the option to choose tax regime again?
If the changes are made in the income tax slabs and rates effective from April 1, 2024, then changes announced will also impact tax calculations of taxpayers. It may further happen that a different tax regime becomes more favorable than the one originally opted for in April 2024.Chadha says, “From FY 2023-24, new/concessional tax regime is the default tax regime. As per circular dated April 5, 2023, it is clarified that employer has to obtain information from employees about their intended tax regime. There is no timeline prescribed in the Circular for the employees to intimate the employer of their choice. If employees do not inform, the employer can consider the new tax regime being default the tax regime. However, the tax regime opted by employees at the time of filing income tax return could be different from what was informed to the employer for a particular financial year. In the July 2024 Budget, if there are any favorable changes in personal taxation under the new tax regime, the employer will not have any challenge in implementing those changes associated with the new tax regime with respect to those employees who have either chosen the new tax regime or have not made any declaration at all (in those cases, new tax regime will be the default regime).”
However, it will be a challenge for those employees who have selected the old tax regime at the beginning of the financial year 2024-25 (before the July 2024 Budget) but wish to switch to the new tax regime due to favorable amendments in the July 2024 Budget. “For this specific group of employees, employers may consider offering an additional opportunity to opt for the new tax regime to align with the updates presented in the July 2024 Budget as April 2023 circular does not explicitly forbid providing such an additional option to the employees,” adds Chadha
It will largely depend upon the employers if they wish to offer their employees the option of changing the tax regime.
“While there is lack of clarity on whether an employee is allowed to switch his/her tax regime in the middle of the year, an employer may choose to provide such an option to its employees. Nevertheless, taxpayers who had specifically opted for the old tax regime are allowed to switch to “old regime” to the “new regime” at the time of filing income tax return and can claim refund of excess TDS deducted.” says Panjiar.