Defaulted to the New Tax Regime? Switch Back at Filing

You didn’t change anything about your salary this year, but your monthly take-home is smaller. The likely reason isn’t a pay cut. It’s that your employer has been deducting TDS under the new tax regime, which ignores your HRA, your 80C investments, and your home loan interest. If you never actively told payroll to use the old regime, this is exactly what was supposed to happen, because the new regime is now the default.

The good news: that deduction is not your final tax. When you file your return for FY 2025-26, you can still choose the old regime, claim everything the new one ignored, and get the over-deducted amount back as a refund. The catch is that this only pays off for some people, and only if you file on time. Here is how to tell whether you are one of them, and exactly what to do.

Why your take-home pay quietly shrank this year

At the start of each financial year, your employer asks which regime to use for your TDS. If you reply, they follow it. If you don’t, they apply the default, and since FY 2023-24 the default is the new regime.

Under the new regime, payroll cannot give you credit for the deductions that used to lower your taxable salary:

• House Rent Allowance (HRA) exemption
• Section 80C (your EPF, PPF, ELSS, life insurance, kids’ tuition)
• Section 80D (health insurance premiums)
• Home loan interest under Section 24(b)
• The extra NPS deduction under 80CCD(1B)

Strip all of that out and your taxable salary on paper jumps, so the monthly TDS goes up and your take-home falls. Nothing went wrong. Payroll just did what the default told it to do.

Your employer’s regime was only for TDS, not your final tax

This is the part most people miss. The regime your employer picked applies to one thing: how much tax to cut from your monthly salary during the year. It does not decide your actual liability.

That gets decided when you file your income tax return. At that point you choose the regime yourself, and you are free to pick a different one from what payroll used. If the old regime gives you a lower tax bill than the TDS already taken, the difference comes back to you.

If you are salaried with no business or professional income, you also get this choice fresh every single year. You are never locked in by last year’s pick or by your employer’s pick.

Before you switch, check whether the old regime actually wins

Here is where I’ll push back on the popular advice. The instinct is “I lost my deductions, so I’ll switch to old and claim them back.” In 2026 that instinct is often wrong.

Budget 2025 made the new regime genuinely hard to beat. A salaried person now pays no tax on income up to ₹12.75 lakh under the new regime, thanks to a ₹75,000 standard deduction stacked on a full rebate up to ₹12 lakh. For the old regime to win, your total deductions have to be large enough to drag your taxable income below what the new regime taxes anyway. For most people without a home loan, they aren’t.

So don’t switch on reflex. Work out your tax both ways first. Our walkthrough of when the old regime still beats the new one has the slab tables and the break-even maths; the rough line is that you need somewhere around ₹8 lakh of deductions before old pulls ahead at a high salary.

Same ₹18 lakh salary, two completely different answers

Two people earn exactly ₹18,00,000. Their employers both deducted TDS under the new regime, around ₹1,50,800 each for the year. The only difference is what they can claim under the old regime.

Ramesh should switch: the old regime cuts his bill below the TDS already taken, so the gap is refunded. Sunil should not touch it: his deductions are too small, the old slabs tax him harder, and switching would turn a clean year into a ₹1.45 lakh tax demand. Same salary, opposite call. Your deduction stack is the whole game.

So where does the refund come from?

A refund is just the tax department returning money you already paid above what you owed. Through the year your employer handed your TDS to the government against your PAN. When you file under the old regime and your real liability comes out lower, the system sees you have a credit, and it pays the excess back to your bank account.

You are not asking for a favour or a rebate cheque. You are reconciling. The TDS was an estimate based on the new regime; your return is the true figure under the regime you actually chose.

How to switch back to the old regime when you file

If you are salaried with no business income, switching is a checkbox, not a form. Many people wrongly believe they need to have told payroll in advance or filed paperwork mid-year. You don’t.

1. Gather your proofs: Form 16, rent receipts or your landlord’s PAN for HRA, 80C statements, your home loan interest certificate, 80D premium receipts.
2. Start your ITR-1 or ITR-2 on the income tax e-filing portal (most salaried filers use ITR-1; switch to ITR-2 if you have capital gains from selling shares or mutual funds).
3. When the return asks whether you want to opt out of the new tax regime, select Yes. Salaried filers without business income do not need to submit Form 10-IEA to do this.
4. Enter your deductions: HRA, Section 80C up to ₹1.5 lakh, 80D, home loan interest, and so on. Your EPF contribution already counts toward that 80C limit.
5. Check the computed tax against the TDS in your Form 16. If your tax is lower, the return will show a refund figure.
6. Submit, then e-verify within 30 days. The refund is processed only after you e-verify.

The 31 July trap: file late and you lose the old regime

This is the one that genuinely costs people money, so it is worth saying plainly. To choose the old regime, a salaried filer must submit the return on or before the due date, 31 July 2026.

Miss it, and your only option is a belated return, which can run up to 31 December 2026. But a belated return is locked to the new regime. You cannot opt for old in it, even if old would have saved you a fortune. So the deduction-heavy person who files on 2 August doesn’t just pay a late fee; they lose the entire refund the old regime would have given them. If switching back is your plan, the deadline is not flexible.

Three things that quietly kill the refund

Even people who do everything else right lose the money to small mistakes. Watch these:

• AIS and Form 26AS mismatches. Before filing, open your Annual Information Statement and 26AS and reconcile them against your own records. If you report less income than the department already has on file, the refund can stall or trigger a notice. If there’s an entry you don’t recognise, raise feedback in the AIS rather than ignoring it.
• Business or freelance income on the side. The checkbox route is only for salaried people without business income. The moment you have professional or business income, opting for the old regime needs Form 10-IEA, and your freedom to hop between regimes every year goes away. Get this checked before you file.
• Skipping e-verification. An unverified return is treated as not filed. No verification, no processing, no refund. Do it within 30 days, ideally the same day, through Aadhaar OTP or net banking.

FAQ: quick answers before you file

My employer already cut TDS under the new regime. Is that money gone? No. It sits as a credit against your PAN. File under the regime that gives the lower tax and any excess comes back as a refund.

Do I have to inform my employer before switching? No. The employer’s choice only governed your monthly TDS. You make the final call in your return, no advance notice required.

Can I switch regimes again next year? If you’re salaried with no business income, yes, every year, with no restriction. Each year’s return is a clean choice.

Is the old regime usually the better pick now? Often not. After Budget 2025 the new regime wins for most salaried people without big deductions. Switch only if your HRA, home loan interest, and 80C-type deductions clearly push your old-regime tax below the new-regime figure.

How long until the refund hits my account? Once you’ve e-verified, refunds for straightforward salaried returns commonly land within a few weeks, sometimes faster, provided your bank account is pre-validated and your AIS matches.

The short version: your shrinking take-home was the default doing its job, not a mistake you can’t undo. Run your numbers both ways, and if the old regime genuinely wins for you, claim it on time and take your money back. If it doesn’t, leaving the new regime alone is the smart move, not a missed opportunity.

• Tags:
• Income Tax
• ITR Filing
• Tax Regime
• TDS
• Salaried
• Tax Refund