Can We Change the Tax Regime While Filing your ITR?

When the Income Tax Return(ITR) filing due date is approaching, you might wonder if you can switch between the new (default) and old tax regimes while filing your income tax returns. Well, YES, you can. For FY 2020-21, the old tax regime was the default tax regime. However, from FY 2023-24, the new tax regime becomes the default one. The rules for changing from one tax regime to another vary for salaried individuals and individuals with business/professional income. The salaried individual can change the tax regime every assessment year.

However, it is not easy for individuals with business or professional income. They can change to the old tax regime only once in a lifetime and must fill out the 10-IEA to switch from the new to the old regime.

Read our article to learn more and understand the steps involved.  

Old Tax Regime V/s New Tax Regime

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. Taxpayers who want to avail the benefits of lower tax rates and have fewer deductions and expenses 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?

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.

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.

Steps to File Form-10IEA

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.

Tax Slab Rates for Old and New Regime

The tax slab for both the new and old tax regimes is given in the image below.

Rebate u/s 87A is applicable up to income of Rs 5 lakhs

Rebate u/s 87A is applicable up to income of Rs 7 lakhs

Things to Remember when Switching Tax 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. 

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.

Related Articles 

1. Due date for filing tax
2. Income tax Slabs
3. Old vs New Tax Regime