Switching Between Old & New Tax Regimes While Filing ITR: What Should You Know?
Since the Indian government introduced an alternative tax regime, individual taxpayers now face a crucial decision every year: whether to stay with the old tax regime (which includes exemptions and deductions) or move to the new one (with lower tax rates but limited deductions). This article explains the latest rules, benefits and drawbacks, how to switch, and what works best based on your income type.
Understanding the Two Tax Regimes
New Tax Regime (Section 115BAC): This is the default tax regime since Assessment Year (AY) 2024-25. It offers lower tax rates and simpler compliance, but at the cost of giving up many deductions and exemptions available under the old regime. Only a few deductions (e.g. certain employer contributions, etc.) are allowed.
Who Can Switch and When
- Salaried individuals without business/profession income: They can switch between old and new regimes each year when filing ITR.
- Individuals or HUFs with business or professional income: They can also move between the regimes, but there are restrictions. If they opt out of the new regime to return to the old one, they need to file Form 10-IEA before the due date under Section 139(1). Once they switch, especially from new to old, that choice has lifetime implications—they can switch back to new but cannot repeatedly jump.
- Deadline for switching: In all cases, the decision to opt for the old regime must be made by the original due date of filing the ITR under Section 139(1). Revivals or belated returns may not allow regime change.
Key Changes & Tax Slabs to Note
Here are some of the recent updates that taxpayers should be aware of — especially for FY 2024-25 / AY 2025-26:
- The new regime is now the default option. If no choice is made, your tax will be calculated under the new regime.
- Standard deduction under the new regime has been increased (for example to ₹75,000) for the current financial year.
- Rebate under Section 87A also differs: under the new regime and old regime, rebate limits are adjusted based on income thresholds.
- Income up to ₹12 lakh may be exempt under certain conditions in the new regime after considering standard deduction.
- Senior citizens have different basic exemption limits under the old regime, but under the new regime this distinction is largely removed, making the new regime more uniform across age brackets.
Pros & Cons: Which Regime Might Save You More?
| Scenario | Old Regime More Beneficial If… | New Regime More Beneficial If… |
|---|---|---|
| You have many deductions / exemptions | Yes – with home loan interest, 80C investments, HRA, health insurance etc. Old regime allows many of these. | No – if your deductions are small or minimal, new regime’s lower slabs may reduce tax more. |
| Simplicity & ease of compliance | Old regime requires maintaining proofs, filing for exemptions etc. More paperwork. | New regime is simpler with fewer deductions and less documentation. |
| Income type and amount | Higher income with many eligible deductions tends to favour old regime. | Modest income, fewer investments or expenses – new regime may lead to better take-home. |
How To Opt For Old Or New Regime While Filing ITR
- Determine your income type: whether you have business/profession income or only salary / non-business income. This affects which ITR form you file.
- If you do not have business / profession income (salaried or pension etc.), you can simply choose the old regime inside the ITR form before the due date. No separate form may be needed.
- If you have business / profession income, then to opt for the old regime you must file Form 10-IEA on or before the due date under Section 139(1).
- Ensure you inform your employer (if salaried) of the tax regime choice, especially for TDS purposes. Although TDS is based on employer’s declaration, actual ITR filing lets you switch.
- File within the original due date. If you miss the deadline and file belated return, you may lose the ability to switch regimes.
Common Mistakes & Important Tips
- Failing to file Form 10-IEA when required for business income leads to loss of old regime benefits.
- Assuming that once you choose the new regime you can always return—this is not always true for business income taxpayers. There are lifetime restrictions.
- Overlooking standard deduction changes: always check current year’s slab and standard deduction under both regimes before decision.
- Delaying ITR filing: belated or delayed returns may block switching options.
Investor Takeaway
If you are a salaried individual with modest deductions, the new tax regime will likely simplify your taxes and may result in lower tax payable. But if you have substantial deductions from investments, home loan interest, health insurance etc., the old regime may still offer better savings. Especially for taxpayers with business income, be cautious: switching has long-term consequences and missing the deadline or Form 10-IEA can mean losing benefits. Always run both scenarios before deciding.
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Disclaimer
The information provided in this article is for educational and informational purposes only. It is not investment, tax, or financial advice. Readers should verify all relevant rules with official sources or a qualified tax professional before making decisions. By reading this, you agree that the author and Indian-Share-Tips.com are not responsible for any losses that may result from reliance on the information contained herein.
