The final submission of proofs of yearly investments and expenses for this fiscal year ends March 31. With the submission, taxpayers need to answer about their choice of the tax regime. At present, there are two tax regimes: Old Tax Regime and New Tax Regime.
The Old Tax Regime is the age-old tax structure that has been in place for decades. Taxpayers can claim various deductions and exemptions under different sections of the Income Tax Act. There are around 70 deductions and exemptions available under this scheme that help minimise your taxable income. It also allows a deduction of Rs 1.5 lakh under Section 80C.
The New Tax Regime was introduced in the Union Budget 2020 with concessional tax rates. The taxpayers opting for the new tax regime cannot claim major deductions like HRA, LTA, Section 80C, and many others.
The Union government in Budget 2023 made this a default choice. If a taxpayer does not explicitly choose between the old and new tax regimes, then their taxes will be automatically calculated under the new regime.
However, the taxpayers have a choice to switch between the two regimes. The frequency of switches permitted depends on your profession or specific criteria set forth by tax regulations.
Salaried individuals and business professionals are given the opportunity to switch between the old and new tax regimes every year. However, individuals who do not fall into these categories are only allowed to transition between the old and new regimes once in their lifetime.
How to make a switch between two regimes?
> Any person earning income from a business or profession can only change tax regimes once. Therefore, if a taxpayer, self employed, opt for the new tax regime, they can only switch back to the old regime once in their whole lifetime.
> These taxpayers have to file Form 10-IE along with their Income Tax Return (ITR). If they fail to file Form 10-IE by the original due date for filing your ITR, they will not be able to switch back to the old regime for that particular year.
> Form 10IE must be submitted prior to filing your income tax return. Once Form 10IE is submitted, a 15-digit acknowledgment number will be generated. Taxpayers are required to provide this 15-digit acknowledgment number in order to proceed with their ITR filing under the new tax regime.
> A salaried individual has the flexibility to switch between the new and the old tax regime every financial year. Even if the taxpayer has chosen the new tax regime for TDS throughout the year, they can still easily change your preferred tax regime when filing your ITR.
> The Central Board of Direct Taxes (CBDT) has recently introduced two new income tax return forms, ITR-1 (SAHAJ) and ITR-4 (SUGAM), for the Assessment Year 2024-25. ITR Form 1 now includes the option to select the tax regime.
> Under the recently introduced tax return forms for FY24, individuals who wish to "opt out" of the new tax regime must fill out a separate form, in addition to selecting 'Old Regime'. Failure to do so will result in the tax computation being calculated under the new regime.
Also read:Old vs new tax regime: What investment proofs must taxpayers submit to their employer?
