Can you Change the Tax Regime While Filing an Income Tax Return (ITR)?

What is Old Tax Regime?

The old tax regime is the taxation system that existed before the introduction of the new tax regime. In the context of the Indian Taxation system, the old tax regime refers to the traditional system of income tax calculation and payment, which includes various deductions, exemptions, and allowances that taxpayers can claim to reduce their taxable income. Under the Old Tax Regime, taxpayers can claim deductions for expenses such as investments in certain financial instruments, insurance premiums, housing loan interest, etc.

What is New Tax Regime?

In addition to the old tax regime, a new tax regime was introduced in Budget 2020. The tax rates under this regime are lower than the old tax regime. However, there are no deductions and exemptions available except for the deduction under sections 80CCD(2) and 80JJA (available for business income).

The New Tax Regime aims to simplify the tax structure and offer lower tax rates to individuals and Hindu Undivided Families (HUFs), thereby reducing the compliance burden and promoting ease of tax filing. The tax rates under the new tax regime are structured in a manner that provides relief to individual taxpayers across different income brackets. The government keeps bringing new changes under new tax regime to make it more attractive to the taxpayers.

Budget 2023 and Budget 2024 brought some significant changes in the new regime, and the tax rate was lowered.

The slab structure for FY 2023-24 (AY 2024-25) and FY 2024-25 (AY 2025-26) is as follows:-

Select the right tax regime (old vs new tax regime) by using our New vs. Old Tax regime Comparison tool

Can We Change Tax Regime while filing ITR?

In the Union Budget 2023, the new tax regime was made the default regime. This implies that if you don't explicitly choose between the old and new tax regimes, your taxes will automatically be calculated under the new regime. However, you retain the flexibility to switch back to the old regime at any point before the due date for filing your tax return for the relevant assessment year. The frequency of switches permitted depends on your profession or specific criteria set forth by tax regulations.

Salaried Individual

A salaried individual can switch between the new and the old tax regime in every financial year. Even if you have opted for the new tax regime for TDS throughout the year, you still have the option to easily change your chosen tax regime while filing your ITR.

Individuals with Income from Business/Profession

Any individual with an income from a business or profession is not eligible to switch regimes more than once. For instance, once you choose the new tax regime, you can only switch back to the old regime once in your lifetime.

How can we Change Tax Regime While Filing ITR for FY 2024-25?

Opting for the appropriate tax regime before filing your Income Tax Return (ITR) can significantly influence your ultimate tax liability. Both salaried individuals and business professionals have the flexibility to switch regimes during the filing process, although the procedures and constraints vary for each category.

Note: If you miss the deadline, i.e., 31st July, you cannot opt for the old regime or switch regimes while filing your ITR in case of a belated return.

For Salaried Individual

The Central Board of Direct Taxes (CBDT) notifies income tax return forms every year. The notified ITR forms ask the individual, "Do you wish to exercise the option u/s 115BAC(6) of opting out of the new tax regime? (default is No)."

If the option "No" is selected, the income tax return form will calculate the amount of income tax payable as per the slabs of the new tax regime. If the individual selects "Yes", this indicates to the income tax department that they wish to opt for the old tax regime. In such a case, the income tax payable will be calculated based on the income tax slabs in the old tax regime. Remember, if any individual wishes to opt for the old tax regime, this should be done before the due date of e-filing income tax return, i.e., 31st July, as post that new regime will be the default one.

For Business Income

An individual having income from a business or profession (including income from derivatives or options) can also opt out of the new tax regime and switch to the old tax regime for a relevant year. However, they must exercise this option in Form No. 10-IEA on or before the due date for filing the income tax return under Section 139(1) for that year. Once opted for, they have a once-in-a-lifetime option to switch back to the new tax regime. After that, they cannot opt for the old tax regime again.

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Form 10IE or Form 10IEA: What is the Difference, and Which Form Should You File?

Taxpayers filing income tax returns for the upcoming FY 24-25 can get confused between Form 10IE and Form 10IEA. The key difference between these forms is that Form 10IE was used to opt for the new tax regime, while Form 10IEA lets you choose the old tax regime. Form 10IE is no longer needed, while Form 10IEA is now mandatory to fill if you are planning to opt for the old tax regime. Since the new regime has been made the default regime, there is no need to file Form 10 IE to select it.
Form 10-IEA is essential to look out for while selecting between the new or old tax regime for this FY 2024-25. Taxpayers have to fill this form before July 31, 2025.

How Individuals Can Switch from One Tax Regime to the Other While Filing ITR for FY 2024-25?

While filing an income tax return form, taxpayers will be provided with an option to select the tax regime under which an individual wants his/her income to be assessed for a particular financial year.
The ITR form asks the individual if you wish to exercise the option u/s 115BAC(6) of opting out of the new tax regime. (default is No). If “no” is selected by the taxpayer, the income tax return will be calculated based on the new regime income tax slab. However, in the case where “Yes” is selected, then the income tax payable will be calculated on the basis of income tax slabs in the old tax regime, and the taxpayer will have to fill the Form 10IEA (if you are a business or professional individual).

How to Change Tax Regime in Income Tax Portal?

• Log in to the Income Tax Portal: Access your income tax e-filing account using your credentials.
• Choose the Correct Form:
  • If you have a business or professional income and want to switch to the old regime:
    • File Form 10-IEA.
  • If you don't have a business or professional income, you can directly select the desired regime in your ITR form.
• Fill in the Form: Provide the necessary details as per the form's instructions.
• Submit the Form: Once filled correctly, submit the form electronically.
• File Your Income Tax Return: After submitting the form (if applicable), proceed to file your income tax return for the relevant assessment year.

Things to Keep in Mind While Switching Tax Regime

When switching between tax regimes, there are several important considerations to keep in mind to ensure a smooth transition and make an informed decision. Here are some key points to consider:

• Understand the Tax Regimes: Before making a switch, it's crucial to thoroughly understand the differences between the old and new tax regimes. Evaluate the tax rates, exemptions, deductions, and any other relevant provisions under each regime.
• Assess Tax Liability: Evaluate your tax liability under both regimes based on your income sources, deductions, exemptions, and tax rates. Calculate the potential tax savings or additional tax payable under each regime to determine which one is more beneficial for your financial situation.
• Impact on Investments and Savings: Consider how switching tax regimes may affect your investments, savings, and financial planning strategies. Some tax-saving investments and deductions may not be available under the new tax regime, so evaluate the impact on your overall financial goals.
• Future Tax Planning: Assess how switching tax regimes may impact your future tax planning strategies. Consider factors such as changes in income, life events, and long-term financial goals when making your decision.
• Review Documentation: Ensure that you have all the necessary documentation and records to support your income, deductions, and exemptions claimed under the chosen tax regime. Keep these documents organized and readily accessible for future reference or audit purposes.

If you're unsure about the implications of switching tax regimes or need assistance in evaluating your options, consider consulting with Tax2win’s tax experts who not just help you with selecting the right regime they can also help you calculate your taxes rightly and e-file ITR online so that you can save the maximum. Hire an Online CA Now!