ITR Filing 2025: How Many Times Can a Taxpayer Switch Between Old and New Tax Regime?
Introduction
With the
assessment year 2025-26 approaching, many taxpayers are confused about
switching between the old and new tax regimes. Section 115BAC of the Income Tax
Act, 1961, allows taxpayers to choose their preferred tax regime, but the
flexibility of switching varies based on the nature of income. This article
provides a detailed explanation of the rules, benefits, and switching options
for salaried individuals and businesspersons.
Understanding the Two Tax Regimes
Old Tax Regime
The old
tax regime allows multiple deductions and exemptions, reducing taxable income
but with higher tax rates.
Deductions Available in the Old Regime:
- Section 80C: PPF, ELSS, NSC,
EPF, tuition fees, home loan principal repayment
- Section 80D: Health
insurance premium
- House Rent Allowance (HRA)
under Section 10(13A)
- Section 80E: Interest on
education loans
- Section 80G: Donations to
eligible charities
- Section 80TTA/80TTB:
Interest income exemptions for savings and senior citizens
- Standard deduction: INR
50,000 for salaried individuals and pensioners
- Rebate under Section 87A:
INR 12,500 (for income up to INR 5 lakh)
New Tax Regime (115BAC)
The new
tax regime offers lower tax rates but does not allow most deductions.
Deductions Available in the New Regime:
- Standard Deduction: INR
75,000 (from FY 2024-25)
- Rebate under Section 87A:
INR 25,000 (for income up to INR 7 lakh)
- Marginal relief for income
slightly exceeding INR 7 lakh
Tax Slab Rates Comparison (AY 2025-26)
Old Tax Regime
|
Income Range (INR) |
Resident Super Senior Citizen |
Resident Senior Citizen |
Any Other Individual |
|
Up to
2,50,000 |
Nil |
Nil |
Nil |
|
2,50,001-3,00,000 |
Nil |
Nil |
5% |
|
3,00,001-5,00,000 |
Nil |
5% |
5% |
|
5,00,001-10,00,000 |
20% |
20% |
20% |
|
Above
10,00,000 |
30% |
30% |
30% |
New Tax Regime
|
Income Range (INR) |
Tax Rate |
|
Up to
3,00,000 |
Nil |
|
3,00,001-7,00,000 |
5% |
|
7,00,001-10,00,000 |
10% |
|
10,00,001-12,00,000 |
15% |
|
12,00,001-15,00,000 |
20% |
|
Above
15,00,000 |
30% |
Rules for Switching Between Old and New Tax Regimes
1. Salaried Individuals (No Business Income)
- Can switch between the two
tax regimes every financial year.
- The choice can be made while
filing the Income Tax Return (ITR).
- Employers deduct TDS based
on declared tax regime, but the final choice is made while filing the ITR.
2. Individuals with Business Income
- Must choose the tax regime
before filing the ITR.
- Can switch from the new
regime to the old regime only once in a lifetime (excluding the
first year of opting in).
- After switching back to the
old regime, they cannot opt for the new regime again unless they cease to
have business income.
Post-FY 2023-24: Key Changes
- The new tax regime is now
the default tax regime.
- Taxpayers must explicitly
opt for the old tax regime if they prefer it.
- Businesspersons still have
the restriction of switching only once.
Example Scenarios
1. Salaried Individual (No Business Income)
Mr. X, a
salaried employee:
- In FY 2023-24, he opts for
the old tax regime.
- In FY 2024-25, he switches
to the new tax regime.
- In FY 2025-26, he switches
back to the old tax regime.
- He can continue switching
every financial year as per his convenience.
2. Individual with Business Income
Mr. Y, a
retail business owner:
- In FY 2024-25, he opts for
the old tax regime.
- In FY 2025-26, he switches
to the new tax regime.
- After switching to the new
tax regime, he can never return to the old regime unless he ceases to have
business income.
Conclusion
Choosing
between the old and new tax regimes requires careful evaluation of deductions,
tax slabs, and financial goals. Salaried individuals enjoy annual flexibility,
whereas businesspersons must carefully decide before switching, as they can do
so only once. Always assess your financial situation before making a choice and
consult a tax expert if needed.
Frequently Asked Questions (FAQs)
1. Can a salaried employee choose a different tax regime while filing ITR than what they declared to their employer?
Yes, the declaration to the employer is for TDS purposes. The final tax regime choice is made while filing ITR.
2. What happens if I forget to choose a tax regime while filing ITR?
From FY 2023-24, the new tax regime is the default. If you fail to choose, you will be taxed under the new regime.
3. Can I switch my tax regime after filing ITR?
No, after filing ITR, you cannot change your tax regime for that year.
4. If I have both salary and freelancing income, how do the switching rules apply?
Since freelancing income is considered business income, you can switch from the new regime to the old regime only once in your lifetime.
5. Are all deductions disallowed in the new tax regime?
Most deductions are disallowed, but a few like the employer’s contribution to NPS under Section 80CCD(2) are still available.
6. How do I calculate which tax regime is better for me?
- Calculate your tax liability under both regimes.
- Consider your eligible deductions under the old regime.
- Use online tax calculators for comparison.