Can we Change the Tax Regime While Filing ITR?
Updated: Jul 11
In the 2020 budget, a new tax regime was introduced for individuals and HUFs. The 2023 budget revised it with reduced tax rates and less tax slabs with enhanced rebates. Now, all taxpayers have an option between the Old Tax Regime and the New Tax Regime. The new regime will be the default regime from FY 2023-2024 onwards. Individuals would, however, be allowed to opt on the old regime as per preference. The frequency at which one can switch between these regimes is determined by the type of income. Read this article to understand how to change between the new vs old tax regime and vice versa while filing the ITR.
Table of Contents:
Understanding the Old Tax Regime
The Old Tax Regime is a traditional system that provides various deductions, exemptions, and allowances which reduces taxable income. Under this regime, the taxpayer is allowed deductions against expenditures incurred on items such as interest on home loans, insurance premiums, investments in some financial instruments, under sections 80C, 80D, and so on. While it often results in higher taxable income, the Old Tax Regime is advantageous in cases of high investments with considerable expenses eligible for reduction, thereby bringing down the overall tax burden by these deductions and benefits.
The following table shows the tax rates for different income ranges under the old tax regime:
Income Range | Tax Rate |
Up to Rs. 2,50,000 | Nil |
Rs. 2,50,000- Rs. 5,00,000 | 5% |
Rs. 5,00,000- Rs. 10,00,000 | 20% |
Above Rs. 10,00,000 | 30% |
Understanding the New Tax Regime
Budget 2020 included a new tax structure in addition to the previous one. Compared to the previous tax regime, the tax rates under this one are lower. Except for the deduction allowed by sections 80CCD(2) and 80JJA (eligible for business income), there are no further deductions or exclusions. The New Tax Regime seeks to ease tax filing for individuals and Hindu Undivided Families (HUFs) by streamlining the tax structure and providing reduced tax rates. This would lessen the cost of compliance. The New Tax Regime's tax rates are set up so that individual taxpayers in various income groups will receive relief.
The new tax system has undergone a few notable changes in compliance with the Union Budget 2023. The basic exemption threshold was increased from Rs. 2.5 lakh to Rs. 3 lakh under the new tax regime, and the tax slab was lowered from 6 to 5. The changes will be operative as of April 1, 2023. The slab structure has been updated as follows:
Is It Possible to Change Income Tax Regime While Filing ITR
The new tax system was established as the default in the Union Budget 2023. This suggests that your taxes will be computed automatically under the new system if you don't specifically select between the old and new tax regimes. You may, at any time before the deadline for submitting your tax return for the applicable assessment year, choose to revert to the previous system. The number of times you can transfer depends on your line of work or on certain requirements outlined in tax laws. We will explain the possibility of the change in tax regime in different contexts.
Salaried Individuals:
Throughout each financial year, a salaried person has the option to alternate between the new and old tax regimes. You still can quickly modify the tax regime you have selected while filing your ITR, even if you have chosen the new one for TDS throughout the year.
Individuals with Income from Business/Profession:
A person who receives compensation from a business or profession is not permitted to change regimes more than once. For example, you can only go back to the previous tax regime once in your lifetime after selecting the current one. To make this transition, you must file Form 10-IE with your ITR. You are unable to revert to the previous system for that year if you haven't previously submitted Form 10-IE before the initial deadline for submitting your ITR.
Steps to Switch Income Tax Regime While Filing ITR
Your final tax liability can be greatly impacted by choosing the right tax regime before filing your Income Tax Return (ITR). During the filing process, both business professionals and salaried individuals might choose to switch regimes; however, each group has different procedures and restrictions. When filing your ITR, do the following actions to switch between tax regimes:
Step 1: Select your preferred regime
New Tax Regime: Provides reduced tax rates, but most exemptions and deductions are eliminated.
Old Tax Regime: Provides for a range of exemptions and deductions but imposes higher tax rates.
Step 2: Verify your eligibility
Salaried individuals: No further paperwork is required; you can select either regime immediately on your ITR form.
People with professional or business income: They are required to file Form 10IE by July 31 of the assessment year and are only permitted to change regimes once in their lifetime.
Step 3: Depending on your circumstances, take the following actions:
For salaried individuals:
Start by opening your ITR form (ITR-1 or ITR-2).
Find the section where the tax regime selection is made.
If applicable, choose "New Tax Regime".
Finish the last few portions of your ITR and send it in.
For Individuals with income from business or profession:
Changing to a New Regime:
Download and fill out Form 10IE, indicating that you want to change to the new regime.
Before July 31 of the assessment year, submit Form 10IE.
Use the "New Tax Regime" option when filing your income tax return.
Changing to the Old Regime:
You can only select this option if you have never swapped previously.
To indicate your desire to return to the previous system, download and fill out Form 10IE.
You cannot include in your current year's return any deductions or exclusions that were available under the previous system.
File your ITR without deciding on a regime in advance.
Step 4: Double-Check and Submit
Carefully check your ITR to make sure it is accurate.
Use your bank account information, Aadhaar OTP, or PAN to electronically validate your ITR.
Select your chosen regime and then online submit your ITR.
Things to Remember When Switching Tax Regimes
To facilitate a seamless transition and enable informed decision-making, there are several crucial factors to take into account when transferring across tax regimes. Here are some important things to think about:
Understand the tax laws: It's imperative to fully comprehend the distinctions between the previous and current tax regimes before making a move. Analyse each regime's tax rates, exemptions, deductions, and any other pertinent clauses.
Evaluate tax obligation: Determine your tax obligation under each regime by taking into account your tax rates, deductions, exemptions, and sources of income. To decide whether the regime is better for your financial circumstances, calculate the potential tax savings or higher tax payable under each.
Consider the effect on savings and investments: Take into account the potential effects of changing tax laws on your savings, investments, and financial planning techniques. The new tax law may exclude some tax-saving investments and deductions, so consider how this will affect your overall financial objectives.
Plan future taxes: Consider the potential effects of changing tax regimes on your long-term tax planning techniques. When selecting your choice, take into account several aspects such as life events, shifts in income, and long-term financial objectives.
Examine the documentation: Make sure you have all the records and paperwork needed to back up the income, exemptions, and deductions you've claimed in accordance with your selected tax system. For future reference or auditing needs, make sure these documents are well-organized and easily accessible.
Form 10IE and Form 10IEA
There may be confusion among taxpayers filing income tax returns for the future FY 2023–2024 between Form 10IE and Form 10IEA. Form 10IE was used to select the new tax regime, but Form 10IEA allows you to select the previous tax system. This is the main distinction between the two forms. While Form 10IEA must now be completed if you intend to choose the old tax regime, Form 10IE is no longer required. Form 10-IEA is a crucial document to consider while choosing the new or old tax system for the fiscal year 2023–2024. Professionals who are paid must complete this form by July 31, 2024. The deadline for filing tax returns is this.
Conclusion
You can certainly switch tax regimes while submitting your ITR. Before choosing to move, take into account tax breaks available under both regimes, such as Section 80D for health insurance policy premiums. See a tax counsellor or financial professional for advice if you find it fascinating to navigate the intricacies of different tax regimes.
FAQ
Q1. Can we change tax regimes every year?
Yes, salaried individuals can opt between the new and old tax regimes every financial year. The preference for the tax regime can be changed while filing ITR even if another regime was opted at the time of TDS during a year.
Q2. Who cannot change tax regimes every year?
Business or profession income earners cannot exercise the option to switch over to a different regime every year. However, those earning from the other sources can switch over once in a year.
Q3. How do I switch over to another income tax regime?
Salaried people can change the tax regime while filing ITR. Individuals with business or professional income have to file Form 10IE latest by July 31st, the deadline for filing ITR.
Q4. Can we opt for the new tax regime after the due date?
No, you cannot switch to the new tax regime while filing belated ITRs.
Q5. Can we switch regimes while filing a revised ITR?
The taxpayer's income type determines whether or not they can transfer regimes. If the taxpayer just receives salary income, he may change regimes while submitting his ITR. Likewise, an employee may only switch regimes once if he receives money from both his business and profession.
Q6. How many times can I switch tax regimes?
Persons earning salary income are free to switch every year. Whereas persons earning business or professional income can switch only once.
Q7. Do employees need to intimate the employer about the choice of tax regime?
Yes, the employee will have to intimate to the employer about his choice of tax regime chosen by him. They can always change their regime at the time of filing ITR before the due date depending on what is more beneficial for them.
Q8. Is the 80C deduction applicable in the new tax regime?
No, the new tax regime disallows all deductions under Chapter VI-A, including the popular 80C and 80D deductions.
Q9. Is the new tax regime permanent?
The old regime is continuing, while the new tax regime introduced is the default. Each year, taxpayers have the option to switch between the regimes by filing a form.
Q10. Under what circumstances is the new regime preferable?
If the total deductions are less than Rs. 1.5 lakh. If the deductions exceed Rs. 3.75 lakh, definitely go for the old regime. In between Rs. 1.5 lakh and Rs. 3.75 lakh, it all depends on individual circumstances.
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