Collect this in the first month of the financial year. Where an employee makes no election, the default regime prescribed by law applies, and the employee should be told that rather than left to discover it from a payslip. The election here is for withholding only; the employee’s final position is settled in the return of income.
Tax Regime Declaration
Election of tax regime for salary withholding
Collect this in the first month of the financial year. Where an employee makes no election, the default regime prescribed by law applies, and the employee should be told that rather than left to discover it from a payslip. The election here is for withholding only; the employee’s final position is settled in the return of income.
[COMPANY NAME] TAN: [TAN] [ADDRESS]
1. Particulars of the Employee
| Item | Detail |
|---|---|
| Name | [NAME] |
| Employee identification number | [ID] |
| Permanent account number | [PAN] |
| Financial year | [YEAR]–[YEAR] |
| Date of joining, where joined during the year | [DATE] |
| Estimated annual salary | ₹ [AMOUNT] |
| Regime applied in the previous financial year | [New / Old / Not applicable] |
| Declaration due by | [DATE] |
2. Election
I hereby elect that tax on my salary income for the financial year [YEAR]–[YEAR] be deducted under:
| Tick one | Regime |
|---|---|
| [□] | The new tax regime — lower slab rates, but most exemptions and deductions are not available |
| [□] | The old tax regime — higher slab rates, with exemptions and deductions available subject to evidence |
3. What Each Regime Means
Indicative only. The list is not exhaustive and the position changes from year to year — confirm the current position before relying on it.
| Item | New regime | Old regime |
|---|---|---|
| Slab rates | Lower | Higher |
| Standard deduction from salary | Available | Available |
| Rebate for income up to the prescribed threshold | Available, at the higher threshold applicable to this regime | Available, at the lower threshold applicable to this regime |
| House rent allowance exemption | Not available | Available, subject to evidence |
| Leave travel concession | Not available | Available, subject to evidence |
| Deduction for specified investments and payments | Not available | Available, subject to evidence |
| Medical insurance premium | Not available | Available |
| Interest on a housing loan — self-occupied property | Not available | Available, within limits |
| Interest on a housing loan — let-out property | Available against rental income, with restriction on set-off | Available, with restriction on set-off against salary |
| Employer contribution to the national pension system | Available | Available |
| Deduction for a person with disability | Not available | Available |
| Professional tax | Not available | Available |
| Set-off of loss from house property against salary | Not available | Available, within limits |
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These notes accompany the template and explain the drafting choices, the compliance points and the mistakes most often made with this document. They appear as a final page in the Word file, intended to be deleted before the document is executed.
An employee who does not respond is not left unallocated. The default regime prescribed by law applies, and the employer must compute on that basis. What the employer should not do is apply the default silently: tell the employee which regime is being applied and what it means, because the first they otherwise learn of it is a payslip that does not match their expectation.
The election drives the whole year’s withholding. Collected in month one, the deduction is smooth. Collected in month six, the correction is compressed into the remaining months and the employee sees a sharp drop in take-home pay. Make it part of the first payroll cycle of the year and part of the joining pack for mid-year hires.
Which regime produces the lower liability depends entirely on how much the employee actually claims. An employee with a large housing loan interest claim, house rent allowance and full investment deductions may do better under the old regime; an employee with few claims almost always does better under the new one. The worksheet in Part 4 exists because employees ask the employer which to choose, and the honest answer is that it depends on their own numbers.
An employer should provide the comparison framework and the facts, and should not recommend a regime. Where an employee wants advice, point them to their own adviser. An employer that recommends a regime and gets it wrong has created a grievance it did not need to own.
The income threshold up to which a rebate is available under the new regime has been increased. Payroll systems configured against an earlier threshold will over-deduct for employees near that level, and the error is not obvious from a payslip. Step 5 of the employer record requires the rates, slabs, rebate threshold and standard deduction to be verified against the current year before the first run — not carried forward from last year’s configuration.
This declaration governs how the employer deducts. The employee’s final position is settled in the return of income, and the ability to switch regime at filing depends on the employee’s category of income and on the law as it stands. Clause 5.4 says so, so that an employee who elects one regime here does not believe the choice is irrevocable for all purposes.
Electing the old regime commits the employee to producing evidence for every claim by the cut-off. Where evidence does not arrive, the claims are disallowed for withholding and the deduction is recomputed over the remaining months. Employees who elect the old regime and then submit nothing face a large deduction in the final quarter. Say this at the time of election.
An employee joining mid-year should elect a regime, declare previous employer salary and tax, and be told how the annual computation will work. Without the previous employer figures, both employers deduct as though theirs is the only income and the employee faces a shortfall with interest at filing.
The provisions governing deduction of tax at source have been consolidated into the current income-tax legislation, replacing the earlier section-wise scheme. Use the current section on challans, returns and certificates. Payroll systems and templates frequently still carry the older numbering.
Where tax is under-deducted, the employer is liable for the shortfall with interest, and the corresponding expenditure may be disallowed. The employee’s declaration does not transfer that risk. Verification, not collection, is the control.
Keep every declaration and every piece of supporting evidence for the prescribed retention period, together with the computation applied. Where a deduction is later questioned, the file is the answer.
Reflects Indian tax law current as of {{DATE OF USE}}. Slab rates, the rebate threshold, the standard deduction, which deductions survive under each regime, the default regime and the rules on switching all change every year — have the payroll configuration and this form reviewed by a tax adviser before the first payroll run of each financial year.
This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, company secretary, or chartered accountant as relevant) before you rely on it.