Have You Submitted Your Investment Declaration Thoughtfully for FY26

In addition, the Investment Declaration form seeks information about the insurance premiums that will be paid (for life and health) of self and dependents, donations you plan to make, expenditure on medical treatment of specified diseases (if any), child's education expenses (only tuition fees), details of home loan (if any), and exemptions for House Rent Allowance (HRA), Leave Travel Allowance (LTA), meal allowance, and so on you wish to avail of under the relevant provisions of the Income Tax Act, 1961.

The Investment Declaration form needs to be submitted at the start of the financial year so that the Tax Deduction at Source (TDS) from your salary income and the Net Take Home (NTH) for the month are calculated properly.

If you fail to submit your investment declaration, your salary income may be subject to higher TDS, having its bearing on your NTH.

"In this world, nothing can be said to be certain, except death and taxes," Benjamin Franklin once famously said.

At present where we have two tax regimes -- the Old Tax Regime and the New Tax Regime -- the Investment Declaration also needs to specifically state which tax regime you are opting for. While the New Tax Regime is the default tax regime, a thoughtful choice between the two needs to be made.

For this purpose, ideally, take a close look at your salary income and the salary structure. You see, every component of your CTC (Cost to Company) will be taxed differently under the Old Tax Regime and the New Tax Regime.

If your net taxable income does not exceed Rs 12 lakh in the financial year, it makes sense to opt for the New Tax Regime (considering that the rebate limit under Section 87A has been increased in the Union Budget 2025-26). Under such a case you will not have to submit a detailed investment declaration -- only state the New Tax Regime.

If your taxable income is slightly higher than 12 lakh, then perhaps you could still choose the New Tax Regime as the income tax slab rates have been revised in favour of individual assessees.

The current income tax slabs under the New Tax Regime -- which is also the default tax regime -- allow taxpayers to save up to Rs 1.14 lakh in a financial year.

Although the New Tax Regime is devoid of many deductions and exemptions available under the Old Tax Regime, it could still be beneficial if your taxable income is not exceptionally high and are not availing of many deductions and exemptions.

This is because of the increased rebate benefit under Section 87A of Rs 60,000 for taxable income up to Rs 12 lakh.

Also, under the New Tax Regime, the standard deduction limit has been increased to Rs 75,000 for the current financial year from Rs 50,000 earlier. Therefore, as a salaried taxpayer, you are not required to pay any tax when the income before the standard deduction is less than or equal to Rs 12.75 lakh. But if one opts for the Old Tax Regime, the standard deduction limit is still at Rs 50,000.

Moreover, the employer's contribution to NPS (Tier-I Account) under Section 80CCD (2) is allowed at 14% of salary (basic + DA) compared to 10% under the Old Tax Regime.

These benefits are offered to promote the new tax regime providing a greater tax relief to a larger section of individual assessees.

By and large, the income tax slab structure under the New Tax Regime is far more very welcoming and encouraging than in the Old Tax Regime.

For this reason, an increasing number of salaried individuals, particularly those who do not have exceptionally high salary income, are opting for the New Tax Regime.

The New Tax Regime has a simple yet efficient structure enabling to save more tax without having to submit the details of all the investments, life insurance premiums, and proof of expenses such as house rent, and children's education fees during the year.

All that you, the employee, need to do is submit the Investment Declaration stating or intimidating that you are opting for the New Tax Regime.

Keep in mind, that choosing between the New Tax Regime and Old Tax Regime would vary from person to person. Note that, the new regime offers lower rates of taxes but permits limited deductions and exemptions.

The Old Tax Regime, on the other, makes available several deductions and exemptions that can be availed. For example, the House Rent Allowance, the deduction for home loan, investments made in tax-saving instruments under Section 80C, the premiums paid for life insurance, health insurance under Section 80D, and many others.

After claiming all the deductions and exemptions, the taxable income above Rs 10 lakh is taxed at 30% under the Old Tax Regime (plus the applicable surcharge and 4% health & education cess). The cess is mandatory for all taxpayers, irrespective of whether the Old Tax Regime or New Tax Regime.

In FY2025-26, in case your income is exceptionally high, and you are utilising the deduction and exemption limits to their maximum limits (as per the provisions of the Income Tax Act) by investing in tax-saving avenues, availing of deductions for home loans, claiming HRA exemption, availing of LTA (twice in a block of 4 calendar years), availing of meal allowance limit, paying interest on education loan, paying your child's education fees, paying health insurance premiums (of self and dependent family members), and so on, then maybe you could consider the Old Tax Regime if it is proving favourable.

In addition, you also need to evaluate if there is a realised loss from income from capital gains, house property, etc. to make a sensible choice between the two tax regimes.

Both the tax regimes have their advantage and disadvantages. Go with the tax regime that makes it possible to save more tax and leaves a higher disposable income.

Following a logical approach shall make it possible to invest sensibly to accomplish the envisioned financial goal/s.

Make sure your Investment Declaration form at the outset clearly states the tax regime you are opting for so that TDS is deducted appropriately from the salary.

Be thoughtful in your approach. Legitimately save your hard-earned money from the axe of tax.

Happy Tax Planning!

We are on Telegram! Join thousands of like-minded investors and our editors right now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.