Can We Change the Tax Regime While Filing your ITR?

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.  

Budget 2025 update

• No income tax for income up-to Rs. 12 Lakhs. This is because of rebate applicable to new regime, which is raised to Rs. 60,000.
• Modified slab rates  for new regime are as follows for FY 2025-2026 (AY 2026-2027)

Income Tax Slabs	Tax Rate
Upto Rs. 4,00,000	NIL
Rs. 4,00,001 - Rs. 8,00,000	5%
Rs. 8,00,001 - Rs. 12,00,000	10%
Rs. 12,00,001 - Rs. 16,00,000	15%
Rs. 16,00,001 - Rs. 20,00,000	20%
Rs. 20,00,001 - Rs. 24,00,000	25%
Above Rs. 24,00,000	30%

Old 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. 

New Tax Regime

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.

Change Tax Regime While Filing ITR

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. 

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. July 31st 2024.

Form 10-IE vs Form 10-IEA

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.

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. 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