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Employees Can Switch to the Old Tax Regime While Filing Their Income Tax Return and May Even Claim a Refund

As the Income Tax Return (ITR) filing season for Assessment Year 2026-27 gathers pace, many salaried taxpayers are facing an important question: What happens if their employer deducted Tax Deducted at Source (TDS) under the New Tax Regime, but they actually want to opt for the Old Tax Regime?

The good news is that, in many cases, employees still have the flexibility to choose the tax regime that works best for them while filing their income tax return.

Tax experts say that an employer's choice for TDS deduction is not necessarily the final tax regime applicable to an employee. The final decision is generally made at the time of filing the income tax return, subject to applicable tax rules.

Why Do Employers Deduct TDS Under the New Tax Regime?

Under current income tax rules, the New Tax Regime is treated as the default tax regime for salaried individuals.

To calculate monthly TDS correctly, employers typically ask employees to declare their preferred tax regime at the beginning of the financial year.

If an employee fails to submit the required declaration within the prescribed timeline, the employer may calculate TDS using the default New Tax Regime.

As a result, deductions and exemptions available under the Old Tax Regime may not be considered while calculating monthly tax deductions.

Common Benefits Employees May Miss During TDS Calculation

When TDS is deducted under the New Tax Regime, employees may not receive consideration for deductions and exemptions such as:

• House Rent Allowance (HRA)

• Leave Travel Allowance (LTA)

• Section 80C investments

• Health insurance premiums under Section 80D

• National Pension System deductions

• Home loan-related deductions, where applicable

This often creates concern among taxpayers who later realize that the Old Tax Regime could have reduced their overall tax liability.

Can You Switch to the Old Tax Regime While Filing ITR?

For salaried taxpayers without business or professional income, the answer is generally yes.

Even if an employer deducted TDS based on the New Tax Regime, eligible taxpayers can choose the Old Tax Regime while filing their Income Tax Return.

At the time of filing the return, taxpayers can:

• Claim eligible deductions

• Report tax-saving investments

• Include HRA exemptions

• Declare health insurance deductions

• Claim other available tax benefits

The tax department will calculate the final tax liability based on the regime selected in the return.

Can You Get a Tax Refund?

In many cases, yes.

If the TDS deducted by the employer exceeds the actual tax liability after applying deductions and exemptions under the Old Tax Regime, the excess amount may be refunded by the Income Tax Department after processing the return.

For example, if an employee qualifies for significant deductions under:

• Section 80C

• Section 80CCD

• Section 80D

• HRA exemption

• LTA exemption

their final tax liability may be substantially lower than the tax already deducted during the year.

Any excess tax paid can potentially be claimed as a refund through the ITR filing process.

Who Can Change Tax Regimes Every Year?

The flexibility to switch between tax regimes is primarily available to taxpayers who do not have business or professional income.

Such taxpayers can:

• Choose the Old Tax Regime one year

• Switch to the New Tax Regime the following year

• Continue changing based on their financial situation

This allows salaried employees to evaluate both options annually and select the one that minimizes their tax burden.

Different Rules Apply to Business Owners and Professionals

Taxpayers with income from business or profession are subject to different rules.

For these individuals:

• Switching between tax regimes is more restricted.

• Once certain choices are made, future changes may be limited.

• Returning to the Old Tax Regime after opting out may not always be possible while business income continues.

Because of these restrictions, business owners and professionals should carefully evaluate their options before making a tax regime selection.

Don't Miss the ITR Filing Deadline

Tax professionals advise taxpayers to complete their return filing before the prescribed deadline.

For Financial Year 2025-26, eligible individuals who wish to choose the Old Tax Regime should ensure that their Income Tax Return is filed within the applicable due date.

Delaying the filing process may affect available options and could result in compliance issues, penalties, or loss of certain benefits under tax regulations.

How to Decide Between the Old and New Tax Regime

Before filing your return, compare both regimes carefully.

The Old Tax Regime may be beneficial if you regularly claim:

• HRA exemption

• Home loan benefits

• Section 80C deductions

• Health insurance deductions

• NPS contributions

• Other tax-saving investments

The New Tax Regime may be suitable for taxpayers who:

• Have limited deductions

• Prefer a simpler tax structure

• Do not actively invest in tax-saving instruments

Calculating tax liability under both systems before filing can help identify the more advantageous option.

The Bottom Line

A TDS deduction under the New Tax Regime does not automatically lock salaried taxpayers into that regime. In many cases, employees can still opt for the Old Tax Regime while filing their Income Tax Return and claim eligible deductions and exemptions.

If the revised tax calculation results in a lower liability, taxpayers may also receive a refund of excess tax deducted during the year. Reviewing both tax regimes carefully before filing can help maximize tax savings and avoid leaving money on the table.

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