ITR filing: How to switch between old and new tax regimes

Did you know you can change the tax regime while filing an ITR? Understand how to make the switch and learn about important deadlines. Reduce your tax burden

By Forbes India

Published: Jul 12, 2024 12:25:35 PM IST

Updated: Oct 18, 2024 06:12:50 PM IST

Filing an ITR can be overwhelming, especially nowadays, due to its recent transformative phase. The tax system in India added a new tax regime in budget 2020 for HUF taxpayers and individuals, offering them an option to pay lesser tax with fewer deductions and exemptions to claim under section 115AC. On April 1, 2023, the CBDT (Central Board of Direct Taxes) announced that if an individual manually does not select the old tax regime, the employer will deduct their TDS based on the new tax regime.

Understanding the difference between these two regimes is crucial to accurately calculating an income tax return and determining your slab. This guide focuses on decoding the basic definitions and explaining how to switch between old and new regimes.

What is the Old Tax Regime

The old tax regime is a traditional income tax structure in India that allows taxpayers to claim various deductions and exemptions to reduce their taxable income. Individuals and taxpayers can lower their overall tax bill by claiming these deductions.

For example, you can claim HRA, deductions for investing in tax-saving instruments like the PPF (withdrawal rules) and life insurance (Section 80C), paying health insurance premiums (Section 80D), paying interest on home loans (Section 24), paying interest on education loans (Section 80E), and donations/ charities (Section 80G).

Old Regime Tax Slabs

Up to ₹2.5 lakh: No tax
₹2.5 lakh to ₹5 lakh: 10% tax
₹5 lakh to ₹10 lakh: 20% tax
Above ₹10 lakh: 30% tax

What is the New Tax Regime

The new tax regime is also the income tax structure in India, introduced in 2020 under the 115BAC section. It allows taxpayers to pay taxes at lower rates but with fewer deductions and exemptions relative to the old tax regime. The key benefit is its simple tax structure with lower rates, especially for those with lower incomes and minimal deductions.

The new tax regime's deductions include the National Pension System (NPS), the Public Provident Fund (PPF), life insurance premiums, and others under Section 80C. Despite Section 80CCD and 80JJA, the new tax regime offers no exemptions or deductions to taxpayers.

New Tax Regime Slabs

Up to ₹2.5 lakh: No tax
₹2.5 lakh to ₹5 lakh: 5% tax
₹5 lakh to ₹7.5 lakh: 10% tax
₹7.5 lakh to ₹10 lakh: 15% tax
₹10 lakh to ₹12.5 lakh: 20% tax
₹12.5 lakh to ₹15 lakh: 25% tax
Above ₹15 lakh: 30% tax

Taxpayers get the flexibility to select between both the old and new regimes in every financial year.

Switching Between Old and New Tax Regimes

The old tax regime is generally more suitable for taxpayers with high incomes and significant tax-saving investments. On the other hand, the new regime is a good selection for those with lower incomes and minimal deductions.

The tax system in India allows taxpayers to switch between the old and new tax regimes annually according to their preferences. To switch between regimes, taxpayers need to file Form 10IE, which serves as the communication channel with the tax authorities regarding their choice of tax regime.

How to File Form 10IE

Here is a step-by-step process for filing Form 10IE :

Select Tax Regime: Carefully assess your financial situation and tax planning needs to decide whether you want to opt for the new or old tax regime for the relevant assessment year.

Access the Form 10IE: The form can be accessed on the ITR e-filing portal or downloaded from the CBDT website.

- Fill Out the Form.

- Part B: Indicate whether you have income from a business or profession.

- Part C: Select the tax regime you wish to opt for - new or old.

Submit the Form: Once filled out, you can submit it electronically on the income tax e-filing portal.

You must submit the physical form to the income tax authorities if you earn income from a business or profession.

File Your Income Tax Return: After submitting Form 10IE, you can file your ITR for the current assessment year, selecting your preferred tax regime.

Keep a copy of the submitted Form 10IE as proof, as you may need to provide it to the income tax department if required.

Information Needed for Form 10IE

Here are the basic details required to fill out Form 10IE that you can keep handy:

Your full name
Permanent Account Number (PAN)
Assessment year for which you want to switch tax regimes
Whether you have income from a business or profession
Details of any deductions claimed under Chapter VI-A, such as Section 80C, 80D, etc.

Who Can Switch

Here is who can switch between the old and new tax regimes:

Salaried Individuals

Flexible to switch between both regimes multiple times within each financial year.
You can choose the regime while filing an ITR.

Individuals with Business or Professional Income

You can only make a one-time choice between the new and old tax regimes.
Need to file Form 10-IEA to opt out of the new tax regime before the ITR due date.
Once they opt out, they cannot opt back in for the new tax regime.

Default Regime

The new tax regime is the default option for all taxpayers. ITR forms like ITR-1 (SAHAJ) and ITR-4 (SUGAM) have built-in options for switching between the old and new regimes.
If individuals do not specify their preference between the old and new regimes, they will be taxed under the new regime.

FAQs

When is the deadline for switching tax regimes in India?

The deadline to switch regimes is the due date for filing your ITR under Section 139(1) of the Income Tax Act. For FY2023-24 (the assessment year 2024-25), the due date is July 31, 2024, unless extended.

Is there any way to switch tax regimes after missing the deadline?

If you miss the deadline to switch regimes while filing your income tax return, you will be taxed under the default regime (new tax regime) for that year.

Who is not eligible to switch between regimes every year?

Individuals with income from business or profession (one-time) and individuals who opt out of the new regime can not return for the new tax regime.

Is the 80C deduction applicable in the new tax regime?

No, the new tax regime does not allow claiming deductions under Section 80C, such as PPF, NPS, and life insurance premiums. The old tax regime continues to offer deductions under Section 80C to reduce taxable income.