Most tax-saving advice written for Indian employees is now out of date, and following it can cost them money. The reason is simple. The new tax regime is the default, and the deductions that advice is built on do not exist inside it.
The Income Tax Department says "The new tax regime is the default tax regime for the Individual, HUF, Association of Persons (AOP)/Body of Individuals (BOI) and Artificial Juridical Person (AJP)."
What changed, and why does it matter to payroll?
An employee is in the new regime unless they opt out. Opting out is an election under section 115BAC(6), and it has to be made, not assumed.
That turns the first payroll question of the year from "what are your investments" into "which regime are you choosing". Collect the election first. The declaration only matters if the answer is the old regime.
Does Section 80C still exist?
Yes, but only for people who leave the default. Under the new regime the taxpayer forgoes most deductions, with narrow exceptions including 80CCD(2) and 80JJAA.
For those who stay in the old regime, the Income Tax Department says "This maximum limit of Rs. 1,50,000 is the aggregate of the deduction that may be claimed under sections 80C, 80CCC and 80CCD."
So the familiar 1,50,000 ceiling is not gone. It is conditional, and the condition is a choice most employees now have to make deliberately.
What does the new regime give instead?
A standard deduction and wider slabs. For assessment year 2025-26 the standard deduction under the new regime is 75,000.
On the Budget 2025-26 changes, the Press Information Bureau says "no income tax is needed to be paid for total income upto ₹ 12 Lakh per annum", and notes the figure rises to 12.75 lakh for salaried taxpayers once the 75,000 standard deduction is counted.
| Total income | Rate |
|---|---|
| 0 to 4 lakh | Nil |
| 4 to 8 lakh | 5% |
| 8 to 12 lakh | 10% |
| 12 to 16 lakh | 15% |
| 16 to 20 lakh | 20% |
| 20 to 24 lakh | 25% |
| Above 24 lakh | 30% |
Check which assessment year applies to the cycle you are running. These slabs come from the Budget 2025-26 announcement, and the Income-tax Act, 2025 comes into force on 1 April 2026, so the position moves.
Which deduction survives in both regimes?
The employer contribution to the national pension scheme under 80CCD(2) is the notable one. Provident fund is different again: the employee's own 12% is a deduction question, while the employer's matching 12% is simply not salary in hand.
PF rules and the 15,000 wage ceiling sit with the Employees Provident Fund Organisation.
When should payroll collect declarations?
At the start of the financial year, not in January. A declaration taken in month 1 spreads TDS evenly across 12 months. A declaration taken in month 10 produces a large correction in the final quarter, which the employee experiences as an unexplained fall in net pay.
This is the single most common payroll complaint in Indian firms, and it is entirely a timing problem.
What proofs should you ask for, and when?
- Regime election. At the start of the year, in writing, per employee.
- Declaration. Only for those in the old regime. Estimated amounts are fine at this stage.
- Proofs. Collected before the final quarter so TDS can be corrected while months remain.
- Form 16. Issued after year end, reflecting what was actually verified.
Accepting a declaration without proof and never following up is how employers end up under-deducting, which becomes the employer's problem rather than the employee's.
What should you tell employees?
Not which regime to choose. That depends on their own investments and housing position, and it is advice you are not placed to give.
Tell them three things instead. The default is the new regime. Choosing the old one is a deliberate election. And a declaration made late costs them in February and March, whichever regime they pick.
How does this run inside payroll?
The regime election, the declaration, the proof status and the TDS computed each month belong on one employee record. Where they live in separate spreadsheets, the February correction is discovered rather than planned.
Statutory filings sit alongside PF and ESI, held by the Employees State Insurance Corporation and governed by the framework the Ministry of Labour and Employment publishes. Running all of it from one record is what 247HRM payroll and statutory compliance are built to do.