Old vs new: Can you change your tax regime while filing ITR?

A taxpayer can switch to the old income tax regime while filing the Income Tax Return (ITR), subject to certain conditions and procedural requirements laid down under the Income Tax Act, 1961.

Under the dual tax regime structure introduced from Assessment Year (AY) 2021–22, individuals and Hindu Undivided Families (HUFs) can choose between the old regime, which allows various exemptions and deductions, and the new concessional regime under section 115BAC, which offers lower tax rates but restricts most exemptions and deductions.

The Finance Act, 2023 has designated the new tax regime as the default choice. However, individuals without income from business or profession can choose between the old and new regimes each financial year. On the other hand, individuals earning from business or profession who have chosen to move out of the new tax regime under Section 115BAC can switch back to it—but only once in their lifetime.

According to CA Suresh Surana, salaried individuals are allowed to switch between the old and new tax regimes each financial year. However, they need to inform their employer of their preferred tax regime at the start of the year. If they don't do so, tax will be deducted at source (TDS) under Section 192 based on the default regime — which is the new tax regime as per Section 115BAC of the Income Tax Act.

Despite this, employees can still choose their final tax regime when filing their ITR under Section 139(1). Therefore, salaried or pensioned individuals who do not earn income from business or profession have the flexibility to select the regime that gives them the best tax benefit at the time of filing their return each year.

"However, taxpayers earning income from business or profession face tighter restrictions when it comes to switching back to the old tax regime. Such taxpayers are allowed to choose the new regime only once. Once opted out of the old regime and into the new regime under section 115BAC(5), the taxpayer is not permitted to revert to the old regime in subsequent years, unless the business or professional income ceases to exist," added Surana.

Taxpayers use Form 10-IEA to opt for the old tax regime or to withdraw from it. According to Surana, those with income from business or profession must file this form by the due date outlined in Section 139(1) while submitting their income tax return for the relevant assessment year.

Individuals without income from business or profession can select the old tax regime directly while filing their income tax return, as long as it is submitted before the due date under Section 139(1).

If a taxpayer wishes to exit the old tax regime, they must also do so by submitting Form 10-IEA. This form must be submitted electronically, either with a digital signature or through an electronic verification code (EVC).

Thus, there is flexibility to switch to the old tax regime exists, provided it is correctly exercised within the return filing process. Taxpayers must evaluate their income composition and available deductions before making this choice.