With the income tax return (ITR) filing season underway, many taxpayers are unsure whether they can change their tax regime while filing their return if they had opted for a different regime in the previous
financial year. The answer depends on the source of your income. While salaried individuals enjoy the flexibility to switch between the old and new tax regimes every year, taxpayers with business or professional income can do it only once. Here’s what you need to know:
Salaried Taxpayers Can Change Tax Regime Every Year
If you are a salaried employee or earn income from sources other than business or profession, you can choose either the old or the new tax regime while filing your ITR for every financial year. This means that even if you opted for the old tax regime while filing last year’s return, you are free to switch to the new regime this year, or vice versa, provided you file your return within the prescribed due date.
The income tax department allows salaried taxpayers to make this choice every year based on which regime offers them a lower tax liability.
Different Rules Apply to Business and Professional Income
The flexibility is limited for taxpayers who have income from business or profession. Under the current income tax rules, the new tax regime is the default option. Those wishing to opt for the old tax regime must file Form 10-IEA before the due date for filing the income tax return.
Once a taxpayer with business or professional income opts out of the new tax regime and shifts to the old regime, they cannot switch between the two regimes every year like salaried taxpayers.
They are allowed only one opportunity to return to the new tax regime. After switching back, they generally cannot opt for the old regime again as long as they continue to have business or professional income.
What If You Chose a Different Regime With Your Employer?
Many salaried employees declare their preferred tax regime to their employer at the beginning of the financial year so that the correct amount of Tax Deducted at Source (TDS) can be calculated.
However, this declaration is only meant for TDS purposes. At the time of filing the ITR, salaried taxpayers can still choose the tax regime that is more beneficial to them, irrespective of the option declared to their employer, subject to the applicable rules.
Who Can Change the Tax Regime Again?
For most salaried taxpayers, changing the tax regime every year is permitted, allowing them to evaluate which option results in lower tax outgo. However, taxpayers with business or professional income should exercise caution before changing regimes, as the law restricts frequent switching and requires compliance with Form 10-IEA provisions.
