Tax declaration: Switching the tax regime can end up hurting your financial health unless you are sure that it aligns with your goals.

It is that time of the year when your employer asks to make investment declaration for the financial year ahead. The Human Resource (HR) of your company will use this to calculate tax deducted at source (TDS) on your salary. Apart from investment declarations, employees are also being asked to opt from either of the two tax regimes.

You should be mindful of the fact whether changing the tax regime will actually help your investment goals or not. Taxpayers are required to choose from either of the two tax regimens every year. This can be changed at the time of filing income tax returns (ITR). The tax slabs are lower in the new tax regime and opting for the same will reduce your TDS. However, it is to be noted that the same is beneficial only if you are not claiming any deductions provided in the old regime. Opting for the new regime will ensure a lower tax slab and higher take-home salary benefit for those whose annual income is below Rs 15 lakh per annum. In case you already have expenses such as rent, medical insurance, tuition fee, home loan and repayment and interest etc then compare your tax outgo under both the regimes before taking a final call.

Changing the tax regime might actually increase your tax liability and increase chances of error. Experts say following the same regime is advisable whether paying advance tax or filing returns. Opting for a different regime may lead to unnecessary tax outgo or refund situation in ITR. In case of changes in payable tax situation, it would attract additional interest liability to be paid by taxpayers. In case of refund, the money will be locked until refund is given by the iT department.

Doing due diligence and calculating tax outgo before deciding the tax regime will help you plan your investments. If you change from new regime to old regime then you will have to make investments at the end of the year. Those who believe in good old cash and do want to spend money on investing can opt the new regime while those who plan their investments and put money into different schemes should opt for old regime, say experts.