By CA Surekha S Ahuja
An employee chooses the new tax regime in April. The appraisal is finalised in July. The employee now asks HR to switch to the old regime.
HR replies: “The declaration window is closed.”
Can the employer refuse? Can payroll accommodate the request? And does the employer’s approval settle the employee’s final tax position?
These are three different questions—and confusing them can create avoidable payroll disputes and TDS errors.
The legal position: payroll declaration is not the final tax option
For Tax Year 2026–27, the governing law is the Income-tax Act, 2025, read with the Income-tax Rules, 2026.
Section 202 makes the new tax regime the default, subject to the statutory provisions for opting out. Section 202(4), read with Rule 136, provides for exercising or withdrawing the statutory option through the return of income in the prescribed manner.
The position also depends on whether the individual has income from business or profession:
Without business or professional income: The individual can generally choose the applicable regime annually through the statutory return process.
With business or professional income: Additional restrictions govern the timing, withdrawal and subsequent exercise of the option. These must be checked separately.
The regime declaration submitted to an employer is used for payroll and TDS estimation. It should not be confused with the statutory option exercised under the Act.
An internal declaration deadline is a payroll control—not a substitute for the statutory rules. Equally, a late request does not automatically require the employer to reopen processed payroll.
Legal references: Section 202(4), Income-tax Act, 2025; Rule 136, Income-tax Rules, 2026.
What should HR and payroll do?
| Situation | Recommended action |
|---|---|
| Request received within the company’s declaration window | Process it under the standard payroll procedure. |
| Request received after appraisal | Reassess the employee’s estimated tax and consider a revised payroll calculation under the company’s policy. |
| Payroll for the month is already processed | Avoid informal retrospective changes. Assess whether future TDS deductions can be adjusted lawfully. |
| Employee requests a switch from new to old regime | Recalculate the estimated liability using only the exemptions and deductions available under the old regime, subject to the applicable conditions. |
| Employee requests a switch from old to new regime | Recalculate under the new regime, excluding claims not permitted under it. |
| Employee has business or professional income | Check the restrictions under section 202(4) before advising on the statutory option. |
| Supporting documents or particulars are incomplete | Seek the prescribed information and evidence before factoring eligible claims into the TDS estimate. |
The company may prescribe declaration windows, cut-offs and an exception-approval process. It should apply them consistently and in accordance with the law.
Why the employer cannot treat this as merely an HR preference
Section 392(1) requires salary TDS to be deducted at the applicable average rate on the basis of estimated salary income for the tax year. The provisions of section 392 also govern relevant employee particulars, evidence and adjustments to deductions.
Consequently, the employer must maintain a reasonable, supportable TDS computation. A declaration signed in April does not eliminate that responsibility.
This does not mean that every late request must be accepted. It means the decision should be documented, the tax estimate should be reviewed where appropriate, and deductions should be adjusted only in accordance with the applicable provisions.
A practical control framework for employers
A defensible process needs only six steps:
Record the request: Obtain the employee’s written request, proposed regime and effective payroll month.
Check eligibility: Identify whether business or professional income affects the statutory option.
Recalculate: Review revised salary, eligible claims, other income information supplied by the employee and TDS already deducted.
Apply the payroll policy: Decide whether the revised estimate can be accommodated in the current or a subsequent payroll.
Document the decision: Record the reasons for approval or rejection and communicate the outcome to the employee.
Reconcile before year-end: Review the remaining tax liability and adjust future deductions lawfully where required.
Payroll approval should not be represented as confirmation that the employee has validly exercised the statutory option. That remains subject to the Act and the prescribed return process.
What should the company’s policy say?
The policy should specify:
The standard window for initial declarations.
The procedure for exceptional mid-year requests.
The payroll cut-off and treatment of already processed salary.
The particulars and evidence required for relevant claims.
The process for recalculating and adjusting TDS.
The employee’s responsibility to verify statutory eligibility and file the return correctly.
Avoid two extremes: promising unrestricted changes throughout the year or stating that every late request is automatically barred by law.
A clear policy protects payroll operations without confusing internal administration with statutory requirements.
CA S. Ahuja Perspective
A closed declaration window does not close the law’s statutory options. An employee’s request, however, does not oblige payroll to reopen every completed transaction.
The employer’s best protection is a documented policy, a defensible TDS estimate, consistent treatment of requests and a clear audit trail. Employees should separately verify their eligibility and exercise the statutory option in the prescribed manner.
For HR, the objective is not to approve or reject requests mechanically. It is to ensure that the payroll decision is supportable, the TDS computation is correct and the statutory position is respected.
Disclaimer: This article provides general guidance on the law applicable to Tax Year 2026–27 as at 14 October 2026. The outcome depends on the employee’s income profile, statutory eligibility and the facts of the case. It is not an individual tax opinion
