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After the announcement of the 2020 budget, which introduced a new tax regime for individuals and HUF, taxpayers now have two options to choose from, i.e., Old Tax Regime and New Tax Regime.
But the question always arises: If I select the old regime right now, can I switch to the new regime at the time of filing, or vice versa? So here are the answers to your questions.
Budget 2023 introduced several rules under the new tax regime, like lower tax rates, lower tax slab, and enhancement in rebate. Additionally, from FY 2023-24 onwards, the new tax regime will be the default option. However, those who want to opt for the old tax regime can switch between these two regimes. However, the frequency of switches between the two regimes is contingent upon the nature of income. Let us read more in the below excerpt.
Budget 2024 Updates
In the 2024 interim budget, no changes were made to taxation for FY 2024-25. The existing tax rates for direct and indirect taxes retained, i.e., the changes announced for FY 2023-24 will be continued. A full budget is anticipated in July after the new government is formed after the Lok Sabha elections.
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.
| Range of Income (Rs.) | Tax Rate |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,000-5,00,000 | 5% |
| 5,00,000-10,00,000 | 20% |
| Above 10,00,000 | 30% |
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 to provide relief to individual taxpayers across different income brackets.
As per the Union Budget 2023, a few key changes have been introduced under the new tax regime. The number of tax slabs under the new tax regime has been reduced from 6 to 5, and the basic exemption limit has been raised to Rs. 3 lakh from Rs. 2.5 lakh. These changes will be applicable from 1 April 2023. The slab structure has been revised:-
| Income Tax Slab | New tax Regime (Before budget 2023) | New Tax Regime (Applicable for FY 2023-24 (AY 2024-25) |
|---|---|---|
| 0 - 2,50,000 | - | - |
| 2,50,001 - 3,00,000 | 5% | - |
| 3,00,001 - 5,00,000 | 5% | 5% |
| 5,00,001 - 6,00,000 | 10% | 5% |
| 6,00,001 - 7,50,000 | 10% | 10% |
| 7,50,001 - 9,00,000 | 15% | 10% |
| 9,00,001 - 10,00,000 | 15% | 15% |
| 10,00,001 - 12,00,000 | 20% | 15% |
| 12,00,001 - 12,50,000 | 20% | 20% |
| 12,50,001 - 15,00,000 | 25% | 20% |
| More than 15,00,000 | 30% | 30% |
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.
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.
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. This switch requires filing Form 10-IE along with your ITR. If you haven't already filed Form 10-IE by the original due date for filing your ITR, you cannot switch back to the old regime for that year. Need assistance filing your Form 10IE and ITR? Book online CA Now!
Determine your tax liability for FY 2023-24 and select the right tax regime (old vs new tax regime) by using our income tax calculator or New vs. Old Tax regime Comparison tool
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. To transition between tax regimes while filing your ITR, follow these steps:
Step 1: Decide on your preferred regime:
Step 2: Check your eligibility:
Step 3: Follow these steps based on your situation:
For Salaried Individuals:
For Individuals with Business/Profession Income:
Switching to a New Regime:
Switching to Old Regime:
Double-Check and Submit:
Taxpayers filing income tax return for the upcoming FY 24-25 can get confused in 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 old tax regime. Since, the new regime has been made the default regime, there is no need for filing Form 10 IE to select it.
Form 10-IEA is essential to look out while selecting between the new or old tax regime for this FY 2023-24. Salaried professionals have to fill this form before July 31, 2024. This is the deadline to file tax returns.
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).
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:
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 file ITR online so that you can save the maximum. Hire an Online CA Now!
Individuals with an income from business or profession are not eligible to switch income tax regimes every year. However, individuals having income from sources other than business or profession can switch their regimes every year.
If you are a salaried individual without an income from a business or profession, you can simply switch the regime by selecting new regime while filing ITR. However, if you are an individual with income from business and profession, you must file Form 10IE before the due date of filing ITR, i.e., 31st July.
Yes, the employee must specify the tax regime he wants to choose for the employer. At the time of filing of ITR, they can switch the regime as per their wish and whichever is beneficial to them.
Whether the taxpayer can switch regimes or not depends on the type of income of the taxpayer. The taxpayer can switch regimes while filing ITR if he has only salary income. Similarly, if the employee has income from business and profession, he can switch regimes only once.
No, while filing belated ITR switching to the New Tax Regime is not possible.
No, deductions under Chapter VI-A, including popular ones like 80C (for investments) and 80D, can not be availed under the new tax regime.
While an individual without income from a business or profession can switch regimes every year, an individual having income from a business and profession cannot switch regimes more than once in their lifetime.
Form 10IEA must be filed before the due date of the original return. The ITR filing deadline is July 31st. Therefore, the time limit to submit Form 10IEA is the same as the last date of the ITR filing.
