Mistakes That Cost You ₹20K–1L in Extra Tax
Many salaried employees overpay tax simply by making wrong or uninformed tax regime choices. Common mistakes include assuming lower slab rates mean lower tax, ignoring deductions, not re-evaluating yearly, relying on others' advice instead of calculations, and faulty employer declarations. This guide lists the most common mistakes while selecting a tax regime and how to avoid them. All content is focused on tax regime selection errors and their impact.
Key Takeaways
- Lower slabs ≠ lower tax: New has lower rates but no 80C, 80D, HRA. For many, Old saves more
- Don't ignore deductions: 80C + 80D + HRA can be ₹3L+. At 30% that's ₹90K saved
- Recalculate every year: Income and investments change. Same choice can become wrong
- Use your numbers: Colleague's or friend's regime may not suit you. Run a calculator
- Declare correctly to employer: Wrong regime or missing proofs = excess TDS
Mistake 1: Assuming Lower Slabs Mean Lower Tax
New Regime has lower slab rates (5%, 10%, 15%, 20%, 30% vs Old's 5%, 20%, 30%). But New Regime removes 80C, 80D, HRA, home loan interest, and most other deductions. If your deductions are large, Old Regime can still result in lower tax despite higher slab rates. Example: ₹15L income, ₹3L deductions. Old: taxable ₹12L (after standard deduction and others). New: taxable ₹14.25L. Old may win. Always calculate both.
Mistake 2: Ignoring Your Eligible Deductions
- 80C: EPF, ELSS, PPF, LIC—up to ₹1.5L. Many have this but don't factor it in regime choice.
- 80D: Health insurance—₹25K–75K. Easy to forget.
- HRA: If you pay rent, HRA exemption can be ₹1–2L. Huge impact.
- Home loan interest: Up to ₹2L. Old Regime only. Often overlooked.
- LTA, 80E, 80G: If applicable, add them. Total deductions determine regime choice.
Mistake 3: Not Re-evaluating Every Year
You chose New Regime last year because you had few investments. This year you invested ₹1.5L in ELSS and started paying rent. Old Regime might now save ₹40–50K—but you never re-ran the comparison. Income, job change, marriage, home loan, rent—all change your optimal regime. Run the Tax Regime Calculator at the start of each financial year and after any major change.
Mistake 4: Relying on Colleague or Friend's Choice
Your colleague chose New Regime and pays less tax. So you choose New. But your colleague may have different income, no rent, no 80C investments. Your profile might benefit from Old Regime. Tax regime choice is personal—based on your income, deductions, and investments. Never copy someone else's choice without running your own numbers.
Mistake 5: Wrong or Incomplete Employer Declaration
- Wrong regime: You want Old but never informed employer. TDS is as per New—excess deducted.
- Under-declared investments: You invest ₹1.5L in 80C but declare ₹50K. Higher TDS.
- Missing HRA proof: You pay rent but don't submit receipts. No exemption, higher TDS.
- Late submission: Proofs submitted after deadline. Employer may not revise TDS.
- Submit correct regime choice and all investment/rent proofs on time. Keep copies.
Mistake 6: Forgetting That New Is Default
From FY 2023-24, New Regime is the default. If you do nothing—no Form 10IE, no declaration to employer—you are in New Regime. To use Old Regime, you must actively opt in via Form 10IE or employer declaration. Many people assume they are in Old Regime because they have investments, but without opting in, they remain in New and lose the benefit of deductions.
Mistake 7: Choosing Based on Simplicity Alone
New Regime is simpler—fewer forms, no investment proofs to employer. But simplicity can cost you ₹30–80K or more if Old Regime would have saved tax. A one-time comparison and annual declaration is worth the effort. Use a calculator; it takes minutes. The savings justify the small extra paperwork.
How to Avoid These Mistakes
- Use Tax Regime Calculator: Enter your income and deductions. Get both regimes' tax. Choose lower.
- Re-run every April: And when salary, rent, investments, or home loan changes.
- Declare to employer: Regime choice and estimated deductions. Submit proofs by deadline.
- Don't assume: Run numbers. What applied last year may not apply this year.
Use Our Tax Regime Calculator
Avoid mistakes by comparing both regimes with your actual numbers. Enter income, 80C, 80D, HRA, home loan interest. Get clear recommendation and tax under each regime.
Disclaimer
Content is for awareness. Tax laws change. Consult a CA for personalised advice.