Can We Switch Between Old and New Tax Regime Every Year?

Individual taxpayers and Hindu Undivided Families (HUFs) can now opt between two tax regimes since the implementation of the new tax regime in Budget 2020: the old one, which included exemptions and deductions, and the new one, which has lower slab rates but no significant deductions. Although this flexibility is appreciated, it also raises a frequently asked question: Is it possible to switch tax regimes while submitting an ITR? How frequently can I do it, if at all? You can choose between the old and new tax regimes each year when you file your ITR if you are a salaried individual without company income. You can only transfer regimes once, though, if you earn money from a business or profession; after that, it's difficult to return to the previous regime. In this article, we will discuss the concept of switching between tax regimes in detail.

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Table of Contents

• What is the Old Tax Regime?

• What is the New Tax Regime?

• Can We Switch Between Old and New Tax Regime Every Year When Filing My Tax Return?

• Tax Regime Selection for Salaried Individuals

• Tax Regime Selection for Individuals with Income from Business or Profession

• How to Change Tax Regime While Filing ITR

• Steps to Change Tax Regime on Income Tax Portal

• How to Opt-Out of the New Regime

• Form 10IE vs. Form 10IEA: Which One to File?

• Things to Consider When Switching Tax Regimes

• Conclusion

• Frequently Asked Questions

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What is the Old Tax Regime?

The tax system that was in place before the implementation of the new tax regime is known as the old tax regime. The term "old tax regime" in the context of the Indian taxation system refers to the conventional method of calculating and paying income taxes, which consists of a number of deductions, exemptions, and allowances that taxpayers may claim in order to lower their taxable income. Taxpayers were able to claim deductions under the Old Tax Regime for expenses like interest on house loans, insurance premiums, and investments in specific financial products.

Income Range	Tax Rate
Up to Rs. 2.5 lakhs	Nil
Rs. 2.5 lakhs- Rs. 5 lakhs	5%
Rs. 5 lakhs- Rs. 10 lakhs	20%
Above Rs. 10 lakhs	30%

What is the New Tax Regime?

Budget 2020 came with a fresh tax structure for taxpayers. As of now, it is also the default tax regime. Compared to the old regime, the tax rates one are lower with this regime. However, beyond the deduction under sections 80CCD(2) and 80JJA (eligible for company income), there are no exclusions or deductions available. Individual taxpayers in a variety of income groups will benefit from the way the new tax regime's tax rates are set up. To make the new tax system more alluring to taxpayers, the government is constantly making adjustments.

Income Slab (Rs)	New Tax Regime Rate FY 2025-26	Income Slab (Rs)	New Tax Regime Rate FY 2024-25
Up to Rs. 4 lakhs	Nil	Up to Rs. 3 lakhs	Nil
Rs. 4 lakhs - Rs. 8 lakhs	5%	Rs. 3 lakhs - Rs. 7 lakhs	5%
Rs. 8 lakhs - Rs. 12 lakhs	10%	Rs. 7 lakhs - Rs. 10 lakhs	10%
Rs. 12 lakhs - Rs. 16 lakhs	15%	Rs. 10 lakhs - Rs. 12 lakhs	15%
Rs. 16 lakhs - Rs. 20 lakhs	20%	Rs. 12 lakhs - Rs. 15 lakhs	20%
Rs. 20 lakhs - Rs. 24 lakhs	25%	Above Rs. 15 lakhs	30%
Above Rs. 24 lakhs	30%

Can We Switch Between Old and New Tax Regime Every Year When Filing My Tax Return?

The default tax regime continued to be the same following the implementation of the new tax regime. In this regard, your taxes will be computed under the new tax system if you do not attempt to select one of the tax regimes. Taxpayers may choose to opt out of the new or default tax regime prior to the deadline for filing their ITRs for the applicable year in order to facilitate their ability to transition between the two tax regimes. Although individuals can choose to switch between the tax regimes annually, taxpayers who receive business or professional income are only able to do so once in their lifetime.

Tax Regime Selection for Salaried Individuals

Every year, taxpayers with non-business income, such as salary income, have the option to convert between the old and new tax regimes. You can easily switch your tax regime while completing your ITR, even if you have chosen the new tax regime for TDS during the year. However, because the new tax regime is the default one for late filing, the choice of tax regime can only be made before the income-tax return (ITR) filing deadline, which is July 31 of each assessment year.

Salaried workers must notify their employers at the start of the fiscal year if they want to return to the previous tax system. Taxes will be automatically deducted by your employer using the new tax system if you do not designate the old one. You can, however, choose to move between the two regimes if you file your Income Tax Return (ITR) before the deadline. This is how it functions:

• Case 1: You can choose to file your ITR using the old regime if your employer has been deducting taxes under the new regime for the entire year and you discover that it would save you more money.When you file your ITR, you can request a refund if your employer withheld more taxes under the new regime.

  
  

• Case 2: You can switch to the new regime if you initially choose the old regime but later decide that the new regime would be more advantageous after reviewing your finances at the time of filing. In this instance, you may also be eligible for a refund if your company withheld excessive taxes during the previous administration.

  
  

Tax Regime Selection for Individuals with Income from Business or Profession

No one who earns money from a business or vocation is allowed to change regimes more than once. For example, you can switch back to the old tax regime just once in your lifetime after opting for the new regime.

How to Change Tax Regime While Filing ITR

Your final tax liability might be greatly impacted by your choice of tax regime prior to filing your Income Tax Return (ITR). Although the steps and restrictions may differ, both salaried individuals and business professionals have the choice to change regimes during the ITR filing process. You will not be able to choose the previous regime or change regimes when filing your ITR if you miss the deadline, which is July 31.

Salaried Individuals

Income tax return forms are notified annually by the Central Board of Direct Taxes (CBDT). The question on the notified ITR forms is, "Do you wish to exercise the option u/s 115BAC(6) of opting out of the new tax regime? (default is No)." The ITR form will determine the tax amount due based on the new regime's slabs if "No" is chosen. Selecting "Yes" lets the income tax department know that the person wants to return to the previous tax system. The income tax due in this situation will be determined using the income tax slabs from the previous tax system. Remember that if someone wants to choose the old tax regime, they must do so by the July 31st deadline for electronically filing income tax returns, after which the new regime will take effect.

Individuals with Income from Business or Profession

A person may also choose to opt out of the new tax regime and return to the previous one for the relevant year if they have income from a company or profession, including income from derivatives or options. They must, however, use this option on Form No. 10-IEA by the deadline for filing the income tax return for that year under Section 139(1). They have the once-in-a-lifetime opportunity to return to the previous tax structure if they so want. They are unable to return to the previous tax structure after that.

Steps to Change Tax Regime on Income Tax Portal

Step 1: Open the Income Tax Portal and log in: Enter your login information to access your income tax e-filing account.

Step 2: Select the Appropriate Form: If you wish to return to the previous system and you earn money from a business or profession, Put Form 10-IEA in the file. You can choose the preferred regime on your ITR form if you don't have any business or professional income.

Step 3: Complete the form: As directed by the form, enter the relevant information.

Step 4: Send in the Form: Once accurately completed, electronically submit the form.

Step 5: Submit Your Income Tax Return: File your income tax return for the applicable assessment year after completing the form, if applicable.

How to Opt-Out of the New Regime

Hindu Undivided Families (HUFs), Association of Persons (AOPs), and individuals who want to give up the new tax system and return to the previous tax regime for income tax computations must complete Form 10-IEA. Form 10-IEA is a declaration that enables taxpayers to choose not to Form 10-IEA must be submitted by taxpayers who file ITR-3, ITR-4, or ITR-5 and have business or professional income. To opt out of the new system, taxpayers filing ITR-1 or ITR-2 without business or professional income can simply check the box on the form.

Form 10IE vs. Form 10IEA: Which One to File?

Form 10IE and Form 10IEA can be confusing to taxpayers preparing income tax returns for FY 24–25. The primary distinction between these forms is that Form 10IEA allows you to select the previous tax regime, whereas Form 10IE was used to select the new one. While Form 10IEA must now be completed if you intend to use the previous tax regime, Form 10IE is no longer required. Form 10 IE does not need to be filed in order to choose the new regime because it is now the default regime. When choosing between the new and old tax regimes for this fiscal year 2024–2025, it is imperative to keep an eye out for Form 10-IEA. This form must be completed by taxpayers before July 31.

Form 10-IE	Form 10-IEA
Allows taxpayers to opt for the new regime.	Filed to opt for the old tax regime.
No longer required as the new tax regime is default regime.	Mandatory for the taxpayers filing through ITR-3 or ITR-4 to file if they opt for old regime.

Things to Consider When Switching Tax Regimes

To guarantee a seamless transfer and make an informed choice, there are a number of crucial factors to take into account when changing tax regimes. Here are some important things to think about:

• It's important to fully comprehend the distinctions between the old and new tax regimes prior to making a change. Examine each regime's tax rates, exemptions, deductions, and any other pertinent clauses.

• Determine the tax due under both regimes with factors such as your tax rates, deductions, exemptions, and income sources. Determine which regime is better for your financial circumstances by calculating the possible tax savings or higher tax due under each system.

• Think about the potential effects of changing tax regimes on your financial planning, savings, and investing strategies. Consider how the new tax system may affect your overall financial objectives because some tax-saving investments and deductions might not be available.

• Examine the potential effects of changing tax regimes on your next tax planning techniques. When selecting your choice, take into account variables like life events, long-term financial objectives, and fluctuations in income.

• Make sure you have all the records and paperwork required to back up your income, claimed exemptions, and deductions under the tax system of your choice. For future reference or auditing needs, keep these records well-organized and easily accessible.

Conclusion

You can, of course, alter your tax regime when submitting your ITR as a salaried taxpayer, but it's crucial to make an informed choice. Before the deadline, both salaried individuals and business professionals can swap regimes, though the latter are not allowed to do it every year. Don't, however, go too quickly. Before switching, think about your long-term financial objectives, tax-saving investments, and total tax liabilities under each system.

Frequently Asked Questions

Can I change my tax regime while filing ITR?

Every year when filing your ITR, you can pick between the old and new tax regimes. The option is included in the ITR form itself, thus no more forms are required. You can only move back to the previous tax regime once in your lifetime, though, if you have income from business or profession and you have chosen the new one.

Can we change the tax regime every year?

Yes, you can transfer tax regimes annually if you are a salaried individual, but only once if you receive income from a business or profession.

Who cannot switch between regimes every year?

People who earn a living through their profession or business are not allowed to change their income tax system annually. People who earn money from sources other than their business or profession, however, are free to change their regimes annually.

Can we switch to the new tax regime after the ITR due date?

You often cannot choose the new tax system when filing a delayed Income Tax Return (ITR) if you miss the deadline. The new tax system is only accessible to salaried people and those who earn money from real estate or other sources (apart from company or profession) if their ITR is submitted before the original deadline. Even if you file a late return, you can choose to use the new tax regime as long as this form is turned in on time.

Is it necessary for the employee to specify the tax regime to the employer?

Yes, the employee must inform the employer about the tax regime he prefers. They have the option to change the regime at the time of ITR filing if it suits them best.

How often can I switch between the two regimes?

• Taxpayers with Business Income: Individuals who earn money from their businesses or professions are not permitted to switch between the regimes annually. You only get one chance to return to the previous tax regime if you choose to opt out of the current one. Taxpayers who earn money from their businesses will not be permitted to return to the previous regime in subsequent years after implementing the new one.

• Non-Business Income Taxpayers: Taxpayers who do not earn money from their businesses or professions are able to alternate between the previous and current tax systems each year. This allows them greater freedom to select the regimen that suits them best each year.

  
  

What happens if I pick the new tax regime?

You would have limited deductions and an increased basic exemption ceiling of Rs 3 lakhs under the new tax regime. Therefore, those without further deductible investments may choose to use the new tax regime.

Which tax form should I file to opt for the old tax regime?

If you wish to switch from the new tax regime to the old tax regime, you must file Form 10-IEA.

What are the deductions for taxpayers under the new tax regime?

Section 80CCD(2) and section 80JJA deductions are available under the new tax regime.

I opted out of the new regime last year, do I still need to switch to the old regime this year?

You won't be able to take advantage of the new tax structure this year if you did so last year. You will have to make a new decision because the new tax regime is the default for the current year. The pick from the previous year does not automatically carry over, so you have to make a fresh one every year.

Can I opt out of the new default regime?

When filing their ITRs, taxpayers have the option to choose not to use the new regime, which is also the default regime. To opt out of the default new regime, taxpayers must complete Form 10-IEA. The new tax structure is now the default choice, under Budget 2023. To formally declare their preference for the previous regime, taxpayers must submit Form 10-IEA. This form permits taxpayers to keep the advantages of the previous administration while guaranteeing openness and correct tax records. Taxpayers can guarantee compliance and comply with their preferred tax system by expressing their preferences and adhering to deadlines.

How many times can we switch regimes?

An individual earning money from a business or profession cannot change regimes more than once in their lifetime, although an individual without income from either can do so annually.

What is the time limit for the submission of Form 10IEA?

It is necessary to file Form 10IEA prior to the original return's due date. The deadline for filing an ITR is July 31st. As a result, the deadline for submitting Form 10IEA coincides with the ITR filing deadline.