Can We Change the Tax Regime While Filing your ITR?

Yes, the tax regime can be changed while filing ITR. For salaried individuals, switching between the old and new tax regimes is allowed every assessment year while filing returns. From FY 2023-24 onwards, the new tax regime is the default. However, for individuals with business or professional income, switching is allowed only once in a lifetime. To switch back to the old tax regime, they must file Form 10-IEA as per the Income Tax rules.

Old Tax Regime V/s New Tax Regime

Under the old tax regime, taxpayers can claim various exemptions and deductions for expenses incurred and investments made, such as deductions under Section 80C, 80D, housing loan interest, HRA, and more. This regime is more beneficial for taxpayers with higher eligible investments and expenses, as it significantly reduces taxable income.

On the other hand, the New Tax Regime offers lower tax rates and a higher basic exemption limit. However, it comes with limited deductions, mainly Section 80CCD(2) for salaried individuals and Section 80JJAA for business income. Therefore, taxpayers with fewer deductions and who prefer simplified taxation with reduced rates should opt for the new tax regime.

However, taxpayers should consider the benefits and limitations of both tax regimes and plan their taxes accordingly.

Who can Switch between Old and New Tax Regime?

Salaried Individuals: Individuals who file ITR1 and ITR2 can switch between the old and new tax regimes annually. They assess their income, investments, and tax liability to choose the tax regime for filing their ITR. If you inform your employer about the tax regime at the beginning of the financial year, you can still change it during the ITR filing. However, if you don’t inform your employer about your choice of tax regime, he will take the new tax regime as the default regime.

Individuals with Business/ Professional Income: These individuals who file ITR 3, ITR 4, and ITR 5 can switch from new tax regime to old tax regimes only once in a lifetime by filling out Form 10-IEA.  If they re-enter to the new tax regime, they cannot switch back to the old tax regime. 

What if Taxpayers don’t Change Tax Regime?

Since the new tax regime is now the default, if taxpayers do not actively choose between the old and new tax regimes, their taxes will automatically be calculated under the new tax regime. However, the Income Tax rules provide flexibility, allowing taxpayers to opt out of the new (default) tax regime and choose the old regime before the last date for filing their ITR for the relevant assessment year.

How Can I Change My Tax Regime While Filing ITR?

Changing your tax regime is simple with a single click. ITR 1 & ITR 2 forms ask the taxpayer “Do you wish to exercise the option u/s 115BAC(6) of opting out of the new tax regime (default is ‘No’)?”. This means that if you click on ‘No’ then you will file your tax return and calculate your tax liability as per the new tax regime, and ‘Yes’ means you have switched from the new tax regime to the old tax regime. 

However, for ITR 3 and ITR 4 to change your tax regime from default regime to old tax regime then you will have to file form 10-IEA on or before the due date, i.e. September 15, 2025.

Form 10-IE vs Form 10-IEA

You might be confused about which form to file for AY 2025-26, is it Form 10-IE or Form 10-IEA. Here is the difference between the forms.

How to File Form-10IEA

From 10IEA can be filed through the following steps:

Step 1: Go to the Income Tax portal and sign in using PAN and password

Step 2: On the dashboard, go to e-file> Income Tax Forms> File Income Tax Forms

Step 3: Search for Form 10-IEA using the search box or scroll through the form list. Click ‘File Now’

Step 4: Choose the relevant assessment year

Step 5: Click on ‘Let's get started’, after checking the list of required documents.

Step 6: Click ‘Yes’ if you have income from business or profession, choose the due date of filing and click on ‘Continue’

Step 7: Click ‘Yes’ on the confirmation to change from the new tax regime to the old tax regime

Step 8: Verify and confirm the details of the three sections below of Form 10-IEA:

Basic Information

The taxpayer’s name and PAN are pre-filled.

The portal pre-selects the regime based on your previous year's filing.

If you opt out of the new tax regime for the first time, the opt-out option will be pre-selected. If the system has a previous year form, the re-entering option will be pre-selected. Click on ‘Save’ button.

Additional Information

Provide details related to the IFSC unit if you have any, and click ‘Save’. If you are opting out of the new tax regime, this additional information panel will be greyed out.

Verification and Declaration

Agree to the declared terms and preview all the form entries before submission.

Step 9: Verify using Aadhar OTP, Digital Signature Certificate (DSC), Electronic Verification Code (EVC)

Step 10: Confirm and submit the form after verification.

Step 11: You will receive the acknowledgement message with the acknowledgement number and transaction ID. Save them for future reference.

Things to Remember when Switching Tax Regime

Switching between the tax regimes is a crucial step, as when you change your tax regime, your tax liability and basic exemption limit will change accordingly. So before changing the tax regime, remember to go through these checkpoints. 

1. Know your Tax Regime: It is imperative to completely understand the tax regimes before choosing one. Analyse deductions, exemptions and tax rates to take full advantage of the regime and save tax.
2. Evaluate the tax liability: Understand the tax liability you would have to pay for the income you earn and the deductions available to you. You can calculate your tax liability through our income tax calculator.
3. Effect on Investments and Savings: Consider the effect of the change of regime on investments, savings and your financial planning techniques. You should also keep in mind that some investments cannot be claimed as deductions under the new tax regime. 
4. Documentation: Make sure that all the documents are required to state your income source, deductions and exemptions claimed while filing your tax returns. 
5. Tax Planning: Look forward to your future financial planning, if changing regimes now will affect them or not, consider life events or long-term investments. If your tax planning will align with the tax regime should also be ensured. 

Conclusion

Certainly, you can switch between tax regimes. If you are a salaried individual, you can switch every year. If you have income from business/profession, you will have to file Form 10IEA to opt for old regime. However, before doing so, keep in mind tax planning, long-term financial goals, and investments. ClearTax, however, allows you to file your taxes within minutes and will automatically select the tax regime suitable for you.

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