When the ITR filing due date is approaching, you might wonder if you can switch between new (default) and old tax regimes while filing your income tax returns. Well, YES, you can. A new tax regime was introduced in Budget 2020; However, it was revised later in Budget 2023. Read our article to learn more and understand the steps involved.
Under the old tax regime, taxpayers can avail of all the exemptions and deductions for expenses incurred, investments made, insurance premiums, housing loans, etc. under section 80 and so on. The old tax regime is mostly advantageous to taxpayers who have higher investments and expenses that are eligible for deduction.
The new tax regime was introduced in the 2020 budget and then revised in the 2023 budget. It provides concessions in the tax rates and increases the basic exemption limit from ₹ 2,50,000 to ₹ 3,00,000; However, under this scheme, only limited deductions are available, i.e., section 80CCD(2) for individuals and section 80JJA for business income.
The tax slab for both the new and old tax regimes is given in the image below.
After the introduction of the new tax regime, the same being the default tax regime. As regards to this if you do not make an effort to choose between the tax regimes, your taxes will be calculated as per the new tax regime. However, for the ease of flexibility to switch between the two tax regimes, taxpayers can opt out of the new / default tax regime before the last date for filing ITR for the relevant AY.
While it should be noted that individuals are given the option to switch between the tax regimes every year, taxpayers earning business or professional income can only switch between the regimes once in a lifetime.
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. July 31st 2024.
You might be confused on which form to file for AY 2024-25, is it Form 10-IE or Form 10-IEA. Here is the difference between the forms.
Form 10-IE | Form 10-IEA |
Form 10-IE allows taxpayers to opt for the new tax regime. | While Form 10-IEA is filed to opt for the old tax regime. |
No longer needed as the new tax regime is the default regime. | However, it is mandatory for the taxpayers filing through ITR-3 or ITR-4 to file for AY 2024-25 if they opt for old regime. |
Swtiching 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.
Certainly, you can switch between tax regimes. 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.
Related Articles