Tax Regime Selector in India Payroll

Indian employees can choose between the Old Tax Regime and the New Tax Regime at the beginning of each financial year. The most beneficial option varies from employee to employee depending on factors such as salary, rent paid, tax-saving investments, deductions, and employer contributions.

The Tax Regime Selector helps employees and HR teams compare tax liability under both regimes, identify the more beneficial option, and save the selected regime directly to the employee’s Salary Structure Assignment for payroll processing.

The Tax Regime Selector automatically compares both tax regimes and recommends the one that results in lower annual tax.

To access the Tax Regime Selector, navigate to:

Home → Tax & Benefits → Tax Regime Selector

1. How to Select a Tax Regime

To compare tax regimes and save a selection:

1. Open the Tax Regime Selector.
2. Select the applicable Payroll Period. The active payroll period is selected automatically when available.
3. Select the Employee. Employees see their own records by default, while HR users can select any employee.
4. Review the Annual Gross Earning amount fetched from the latest Salary Structure Assignment.
5. Enter applicable tax declarations and exemptions.
6. Review the tax comparison displayed on the page.
7. Select the preferred regime.
8. Click Save Regime.

The comparison highlights the recommended regime along with the estimated tax savings.

2. Features

2.1 Tax Declarations

The Tax Regime Selector allows employees to enter tax-saving declarations organized by exemption sections.

The system automatically:

• Groups declarations by exemption category.
• Prefills deduction components already available in the employee’s salary structure.
• Matches components such as EPF and Employee NPS automatically.
• Displays only the sections relevant to the employee.

Examples:

• 80GG is hidden when HRA is already available in the salary structure.
• 80TTA or 80TTB is displayed based on the employee’s senior citizen status.

Only relevant exemption sections are displayed, making tax comparison simpler and more accurate.

2.2 HRA Exemption Calculation

If the employee’s salary structure includes a House Rent Allowance (HRA) component, additional fields become available to calculate HRA exemption.

Employees can enter:

• Monthly Rent Paid
• Metro City Status

The HRA exemption is calculated as the lowest of the following:

• Actual HRA received.
• 50% of Basic Salary for metro cities or 40% for non-metro cities.
• Rent paid minus 10% of Basic Salary.

2.3 Tax Comparison

The comparison section provides a detailed breakdown of tax calculations under both regimes.

The comparison includes:

• Annual taxable income.
• Applicable exemptions and deductions.
• Tax payable under each regime.
• Estimated savings.
• Recommended tax regime.

This allows employees to make informed tax planning decisions before payroll processing begins.

The recommended regime is highlighted automatically based on the lowest tax liability.

2.4 Saving the Selected Regime

After reviewing the comparison:

1. Select the desired tax regime.
2. Click Save Regime.
3. Confirm the selection.

Once saved, the selected Income Tax Slab is automatically linked to the employee’s Salary Structure Assignment.

2.5 Employee Notifications

The Tax Regime Selector includes notification tools that help HR teams remind employees to make their tax regime selection before payroll processing.

Notify a Single Employee

1. Open the employee’s Salary Structure Assignment.
2. Click Notify to Select Tax Regime.
3. An email containing a link to the Tax Regime Selector is sent automatically.

Notify Multiple Employees

1. Open the Salary Structure Assignment list.
2. Select multiple Draft assignments.
3. Run the Notify to Select Tax Regime action.

The system automatically:

• Sends emails only for Draft assignments.
• Skips Submitted assignments.
• Skips employees without an email address.
• Displays a summary showing notified and skipped employees.

Email notifications are sent using the following priority:

1. Preferred Email
2. Company Email
3. Personal Email

3. Declaring Tax Exemptions

The values entered in the Tax Regime Selector are used only for comparison and are not automatically saved as official declarations.

To create a formal declaration:

1. Click Declare Tax Exemptions.
2. A new Employee Tax Exemption Declaration is generated automatically.
3. Review the generated declaration.
4. Submit the document.

The declaration is prefilled with:

• Employee details.
• Payroll Period.
• Declared exemption amounts.
• HRA details, including rent and metro-city status.
• Applicable exemption categories.

Once submitted, the declaration becomes available for payroll processing and exemption proof submission workflows.

Tax declarations entered in the selector are not stored permanently until an Employee Tax Exemption Declaration is created and submitted.

4. Automatic Setup

The first time the Tax Regime Selector is opened, India Payroll automatically creates required tax configuration records if they do not already exist.

These include:

• Income Tax Slabs
• Employee Tax Exemption Categories

This setup process:

• Runs automatically.
• Requires no manual configuration.
• Can be executed multiple times safely.
• Does not create duplicate records.

Benefits of the Tax Regime Selector

• Compares Old and New Tax Regimes automatically.
• Provides personalized tax-saving recommendations.
• Calculates HRA exemptions automatically.
• Reduces manual tax calculations.
• Supports employee self-service tax planning.
• Integrates directly with payroll processing.
• Streamlines employee tax declaration workflows.

Related Topics

• Salary Structure Assignment
• Employee Tax Exemption Declaration
• Income Tax Slab
• Payroll Period
• Payroll Entry
• Tax & Benefits
• Income Tax Calculation
• Salary Structure