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TABLE OF CONTENTS

• Who is this article for?
• What are Income Tax Regimes?
• What is the difference between the Old Tax Regime and the New Tax Regime?
• How can I configure employees’ tax regimes in Keka?
  • Individual Update: One employee at a time
  • Bulk Update: Multiple employees at a time
• Allowing employees to update their tax regime

Who is this article for?

If you are a payroll admin, this article will help you set up a tax regime for your employee. 

What are Income Tax Regimes?

The income tax regime refers to the set of rules defined by the government that prescribes the rate of tax along with the exemptions that can be claimed by a person on the basis of his income.

As per the Indian Income Tax Act, a salaried individual can choose to pay taxes under any of the two tax regimes formulated by the government:

1. Old Tax Regime or
2. New Tax Regime

As per the latest Finance Budget, all the employees are a part of the new tax regime by default. However, they can choose to pay taxes under the old tax regime.

What is the difference between the Old Tax Regime and the New Tax Regime?

The major differences are in the tax rates for different income slabs and exemptions allowed to a salaried individual.

Tax Slabs:

Here is a comparison between the tax rates in the two regimes as on 1st April 2023:

Benefits, exemptions, and other deductions:

1. Standard Deduction: Standard Deduction of Rs 50,000 is allowed to employees under both regimes.
2. Rebate: Old tax regime allows rebates up to a taxable income of Rs 5,00,000 while the new tax regime allows rebates up to a taxable income of Rs 7,00,000.
3. Surcharge: Under the new tax regime, for individuals with taxable income ≥ 5 crores, the surcharge has been reduced from 37% to 25%.
4. Leave Encashment Exemption: The encashment limit under both regimes for non-government employees has been increased to Rs 25,00,000.
5. Exemptions and Deductions: Under the old tax regime, there are over 70 exemptions and deductions available, including HRA, LTA, deductions from 80C to 80U, etc, that can reduce an employee’s taxable income and lower tax payments. Under the new tax regime, exemptions like  HRA, LTA, and 80C to 80U are not available except Employer’s contribution to NPS and contribution to Agniveer Corpus Fund u/s 80CCH.

How can I configure employees’ tax regimes in Keka?

In compliance with the regulations, effective 1 April 2023, by default all the employees are a part of the New Tax Regime in Keka.

You have 2 ways to update the tax regime for your employees. 

1. Individual Update: One employee at a time
2. Bulk Update: Multiple employees at a time
   
   

Individual Update: One employee at a time

To update an employee’s tax regime:

Navigate to the Payroll tab (1) and click on Payroll Admin (2). 

Make sure you're on the Operations tab. Under the Payroll Status, Tax Regime & Financial Details section, select Income tax Regime of Employees.

On this page, select the Pay Group and Financial Year for which you would like to view/update the tax regime. You can additionally select the Location, Business Unit, Department, or Employment Status to further filter down the list of employees.

Upon selecting the relevant details, click on Run.    

Click on the Update button in the Actions column in the corresponding row for the employee you would like to update the tax regime.

On clicking Update, a popup opens which shows the current tax regime selection. Click on the radio button to change the tax regime and click on Update to save the selected regime.

Bulk Update: Multiple employees at a time

To update the tax regime for multiple employees at once, follow the below steps.

From the Income Tax Regime of Employees, click on Update IT Regime in Bulk. 

Download the Excel template by clicking on the Excel Template hyperlink. In the downloaded file,  update the current tax regime, and upload the updated file on this page by clicking on the Upload Excel File button. 

After uploading, in the Match Columns section, ensure the Excel columns are matched to the correct fields and click on Continue.

Review the data in the Preview Data screen and click on Complete if there are no errors in the file you uploaded. If there are errors that are shown on this screen, go back to the Excel file, make the necessary changes, and upload the file again. 

When you click complete, a popup will open to confirm your changes, click on Confirm to save the updated tax regimes.

The updated tax regime will take effect from the upcoming pay cycle. The past processed pay cycles are not affected with the change.

Allowing employees to update their tax regime

You can also configure the settings to allow your employees to switch their tax regimes before a defined cut-off date.

This setting can be configured on a pay group level.

To configure this, follow the below steps: 

Navigate to the Payroll tab (1) from the left navigation pane and click on Settings.

Click on the Settings Icon, against the Pay Group you wish to configure this for. 

Select the Taxes and Deductions tab. Click on the three dots on this page and then select Update Tax Regime from the drop-down. 

Enable the Allow Employees to Change Their Tax Regime checkbox to allow employees to change their tax regime from their profiles. You can also set up a cut-off date beyond which the employees will not be allowed to change their tax regime. You can also choose a cut-off date for new joiners in the organization to update their tax regime. Click on Save to update the setting.

Hope this was helpful in learning how to update the tax regime for employees and configure the settings that allow your employees to update their tax regimes as they wish.