Wrong Tax Regime Selection and Income Tax Notices: How TaxBuddy Corrects Old vs New Regime Errors
- Asharam Swain
- 2 days ago
- 9 min read
Wrong tax regime selection under the Income Tax Act, 1961, often triggers demand notices, refund adjustments, or mismatched tax computations. These issues typically occur when deductions under the old regime are claimed without eligibility, or when the new regime is applied without the required forms. Errors by employers or automated portal calculations can further distort the tax outcome. Early correction prevents unnecessary tax demands, and platforms like TaxBuddy simplify this process by comparing both regimes, detecting inconsistencies, and guiding accurate rectification through expert-backed assistance.
Table of Contents
Understanding Wrong Tax Regime Selection
Wrong tax regime selection occurs when the income tax computation does not match the regime actually intended or chosen by the taxpayer. This may be due to missing forms, employer misreporting, or system-level defaults applied by the portal. The old regime allows deductions and exemptions, while the new regime focuses on lower slab rates with limited benefits. When the wrong regime is applied, the tax payable or refund changes, creating inconsistencies between Form 16, AIS, 26AS, and the filed return. Such mismatches form the basis of tax notices and demand adjustments.
Why Wrong Tax Regime Selection Leads to Income Tax Notices
A wrong tax regime selection immediately disrupts the accuracy of the tax computation, and this mismatch is detected during automated processing. When deductions such as Section 80C, Section 80D, HRA exemptions, or interest on home loans appear in a return filed under the new tax regime, the system identifies the inconsistency because these benefits are not allowed in that regime. Conversely, if the old regime is intended but the system detects missing forms like Form 10-IE or deductions that do not match the old regime structure, the computation engine defaults to its own interpretation, often resulting in a significantly different tax outcome.
Most notices are generated under Section 143(1), where the processing system compares the taxpayer's declared values with permitted regime rules. Any deviation triggers an adjustment, which then appears as a demand or a reduced refund. When discrepancies persist across years, the department may adjust outstanding tax demands under Section 245, creating a chain reaction of refund reductions or set-offs. These adjustments often come as a surprise because the taxpayer may have computed liability under one regime while the system recalculates it under another.
The automated nature of the income tax processing system means that even small errors in regime selection, deduction claims, or form filing become red flags. The system does not interpret intent; it only checks numerical and regulatory consistency. When that consistency is broken, it recalculates tax using its own logic, leading to variations in tax payable, changes in refund amounts, and the issuance of notices seeking clarification or payment. This is why selecting the correct tax regime and ensuring that claims match the chosen structure is essential to prevent downstream notices and adjustments.
Common Old vs New Regime Errors
Most regime-related mistakes fall into predictable categories. Many taxpayers forget to file Form 10-IE/10-IEA when required, causing the system to revert to the old regime despite a new regime preference. Others assume the new regime applies automatically and continue claiming old regime deductions like Section 80C, Section 24(b), or HRA exemptions. Another frequent issue emerges when employers compute TDS under one regime while the return is filed under another. Errors increase when portal defaults override selections, particularly for individuals using ITR-3 or ITR-4.
How TaxBuddy Detects and Corrects Wrong Regime Selection
TaxBuddy reviews the taxpayer’s Form 16, AIS, 26AS, and the declared regime to identify mismatches before filing. It computes tax liability under both regimes and highlights whichever contradicts the chosen option. If documents indicate a different regime than the one applied, the system flags the mismatch instantly. In notice scenarios, TaxBuddy’s experts study the computation sheet issued by the department, verify eligibility for the selected regime, and prepare responses supported by evidence. Automated checks and expert review create a seamless path to correcting the mismatch.
Correcting Wrong Regime Selection Through Updated or Revised Returns
If the error is discovered before the filing due date, the regime can be corrected through a revised return. After the deadline, Section 139(8A) offers the updated return route, enabling correction within an extended window, subject to additional tax. Updated returns help reverse incorrect deductions, apply the correct regime, and rectify any refund-related inconsistencies. In certain cases, rectification requests under Section 154 allow minor corrections where the issue stems from computational or departmental oversight. Early action improves the chances of reversing or reducing incorrect tax demands.
Employer and Department-Level Errors: How They Affect Taxpayers
Sometimes the employer applies a TDS regime that differs from the taxpayer’s actual selection while filing the return. This creates discrepancies between Form 16 and the chosen regime, leading to mismatches during processing. Department-level errors also occur, especially when automated systems default to the old regime despite a clear selection of the new regime in the ITR. Such issues lead to demand notices even when the return is accurate. Corrections require reprocessing requests, clarifications, or updated returns to align the department’s computation with the taxpayer’s intent.
Is Deduction Eligibility Different in the New Tax Regime?
Yes. The new tax regime allows only limited deductions, such as employer contributions to NPS under Section 80CCD(2), certain allowances, and select standard calculations embedded into the slab system. Benefits like Section 80C, Section 80D, HRA, LTA, and interest deductions on home loans under Section 24(b) generally do not apply. Understanding this distinction is essential because claiming these deductions under the new regime frequently results in demand notices. Eligibility must always be checked before selecting the regime to avoid incorrect computations.
How Benefits Work in the Old Tax Regime
The old regime allows a broad range of deductions and exemptions. Common claims include Section 80C investments, Section 80D health insurance premiums, HRA exemption based on salary and rent, standard deduction for salaried individuals, and interest deductions on home loans. These benefits significantly reduce taxable income and make the old regime favourable for taxpayers with high eligible deductions. Since the availability of these deductions defines whether the old regime is beneficial, selecting the wrong regime without evaluating them often leads to higher tax liability and mismatch notices.
Preventing Regime Selection Errors When Filing ITR
Preventing regime-related errors requires verifying eligibility before choosing a regime, checking employer TDS calculations, confirming the filing of Form 10-IE/10-IEA where applicable, and comparing liabilities under both regimes. Reviewing pre-filled data and AIS entries ensures that deductions are consistent with the selected regime. Using digital tools that automatically compute tax under both regimes reduces the risk of choosing incorrectly. Platforms like TaxBuddy allow comparison, highlight mismatches instantly, and guide users through regime-specific compliance steps to avoid notices.
How TaxBuddy Supports Notice Resolution for Regime Mismatches
TaxBuddy’s notice resolution process includes detailed scrutiny of the computation sheet, verification of the intended regime, validation of deduction eligibility, and preparation of a structured response. Its experts upload supporting documents, submit rectification requests, and guide updated return filings when necessary. The platform also manages departmental communications and tracks refund adjustments or demand reductions. With automated checks and expert intervention, the system ensures accurate correction of regime errors and restores compliance efficiently.
Conclusion
Wrong tax regime selection can create avoidable tax notices, refund delays, and unexpected demands. Identifying the mismatch early and choosing the correct correction route ensures smoother compliance. Digital tools that compare both regimes and detect inconsistencies reduce the possibility of error. TaxBuddy integrates these capabilities with expert-backed notice handling, enabling accurate computation and timely corrective action. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy provides two filing paths to suit different needs. The self-filing mode is designed for individuals who prefer completing returns independently with automated guidance, pre-filled details, and real-time error checks. The expert-assisted mode is meant for taxpayers dealing with complex situations, multiple income sources, capital gains, or notices. A dedicated CA reviews documents, prepares the return, and ensures compliance. Both options maintain the same level of accuracy and security, allowing taxpayers to choose based on comfort and complexity.
Q2. Which is the best site to file ITR? The best platform depends on how much support a taxpayer needs. While the Income Tax Department’s portal is widely used for direct filing, platforms offering automated checks, guided workflows, and mismatch detection improve accuracy. TaxBuddy stands out for its AI-driven tools that compare data across AIS, Form 16, 26AS, and chosen regimes, reducing filing errors. Its expert-assisted services ensure correct tax computation and timely compliance, making it a strong choice for individuals seeking both convenience and precision.
Q3. Where to file an income tax return? Taxpayers may file an ITR on the official e-filing website or through authorised electronic intermediaries. Platforms like TaxBuddy offer seamless filing by auto-fetching PAN-linked data, highlighting discrepancies, and guiding users through deductions, exemptions, and regime selection. This reduces manual errors and ensures a smoother filing experience, especially for those dealing with multiple income categories or prior notices.
Q4. What happens if the wrong tax regime is selected while filing ITR? Selecting the wrong regime affects deduction eligibility and recalculates tax liability, often leading to demand notices or refund reductions. Automated processing systems detect mismatches between claimed deductions and regime selection. When this occurs, taxpayers may receive intimation under Section 143(1). Correcting the error may require revised returns, updated returns, or rectification requests. Platforms like TaxBuddy help identify the mismatch and guide the appropriate correction method.
Q5. Can wrong tax regime selection be corrected after filing the return? Yes, the error can be corrected. If the filing deadline has not passed, a revised return may be filed with the correct regime. After the deadline, Section 139(8A) allows an updated return within a defined window, subject to additional tax. Rectification requests under Section 154 may also resolve cases arising from departmental miscalculations. TaxBuddy assists with all correction routes by analysing the computation sheet, identifying errors, and preparing the required filings.
Q6. Why do taxpayers receive notices when the employer uses a different regime for TDS? Employers may estimate TDS based on initial declarations, which sometimes differ from the taxpayer’s final regime choice. When Form 16 reflects one regime and the ITR applies another, the mismatch surfaces during processing. The Income Tax Department treats it as a computational discrepancy, triggering notices or demand adjustments. Proper documentation and explanation help resolve the issue, a process supported by TaxBuddy’s expert team.
Q7. Does the new tax regime allow deductions like Section 80C or HRA? The new regime restricts most deductions and exemptions available under the old regime. Benefits like Section 80C, Section 80D, HRA, LTA, and home loan interest deductions do not apply, except for a few permitted allowances. Claiming these under the new regime creates inconsistencies that lead to notices. Verifying eligibility before choosing the regime is essential to avoid errors.
Q8. How can taxpayers determine whether the old or new regime is more beneficial? A comparison of tax liability under both regimes helps determine the ideal choice. The old regime benefits those with substantial deductions, while the new regime suits individuals with minimal claims who prefer lower slab rates. Digital calculators simplify the comparison, and TaxBuddy’s automated system performs this analysis before filing, reducing the chances of incorrect regime selection.
Q9. Can departmental errors also cause wrong regime-related notices? Yes, system-generated computations occasionally apply a regime different from the one selected in the ITR. Even if the taxpayer has correctly opted for the new regime, the portal may default to the old regime, leading to inflated tax demands. Resolving such issues requires reprocessing requests or filing updated returns. TaxBuddy’s experts document the error and submit the required evidence to correct the department’s computation.
Q10. How does TaxBuddy assist in resolving regime mismatch notices? TaxBuddy evaluates the notice, checks the intended regime, reviews the AIS, Form 16, and computation sheet, and identifies the source of mismatch. Experts prepare detailed responses, upload supporting documents, and file rectification or updated returns as required. The platform also tracks refund adjustments and ensures the correct tax liability is restored. This structured approach ensures quick and accurate resolution.
Q11. What steps can prevent future regime selection mistakes? Preventive steps include running a regime comparison before filing, verifying employer TDS details, checking AIS and pre-filled data for accuracy, and ensuring Form 10-IE/10-IEA is filed when required. Using guided platforms such as TaxBuddy reduces manual oversight and alerts taxpayers to mismatches before the return is submitted, preventing notice-triggering inconsistencies.
Q12. Can TaxBuddy help first-time filers avoid regime-related mistakes? Yes. First-time filers often face confusion regarding deductions, exemptions, and regime eligibility. TaxBuddy simplifies the process with automated comparisons, pre-filled data checks, and clear guidance on allowed benefits under each regime. Expert-assisted plans offer additional support, ensuring accurate selection and error-free filing from the very first return.
