Changing Tax Regime While Filing ITR

The old tax regime is a traditional taxation system that has various exemptions, deductions and allowances that taxpayers can claim to reduce their tax liability. Furthermore, the tax rate on the range of income varies in the old tax regime.

Under the old tax regime, individuals can claim deductions on housing loan interest, health insurance premiums, financial instruments and more. Here is a table of income tax slab rates for the old tax regime for the financial year 2023 - 24.

The new tax regime was introduced in the 2020 budget. The tax rate under this regime is lower than the old regime, but it does not offer any deductions or exemptions under sections 80CCD(2) and 80JJA.

The goal of the new tax regime slab is to simplify the tax structure and offer lower tax rates to Hindu Undivided Families and individuals. Importantly, under this tax regime, taxpayers will find relief across different income brackets, providing a sense of security.

To make this tax regime more attractive, the government of India keeps making new changes. Below is the new tax regime slab structure for the financial year 2024-25:

Also Read: Difference Between Old Vs New Tax Regime: Which is Better?

According to the budget 2023, the new tax regime is the default regime for all taxpayers. This simply means that if the taxpayer does not switch to the old tax regime while filing their returns, the tax will be calculated under the new tax regime.

However, taxpayers have the flexibility to change from the new regime to the old regime as per their preference. The frequency of switches will depend on the profession and criteria set by the income tax regulations. Let us understand both in detail:

Salaried Individuals

If a salaried individual wants to change the tax regime while filing an ITR, they can do it every financial year. Individuals who have selected the new tax regime for TDS the entire year can also change their tax regime to the old one while filing their income tax returns.

**Income From Business or Profession **

Individual taxpayers with earnings from a profession or business are not eligible to switch or change tax regimes more than once. This simply means that if the taxpayer has chosen the new tax regime and wants to change to the old tax regime, then they can do it once in their lifetime.

After switching back to the old regime, they cannot change back to the new tax regime. To change from the new regime to the old regime, individual taxpayers need to file Form 10 IE and 10 IEA with ITR.

Choosing the right tax regime while filing an income tax return is crucial since it impacts the final tax liability. The steps for changing the tax regime are different for salaried and business individuals. Let us ensure you are fully informed about both methods:

Procedure to Change Tax Regime for Salaried Individuals

-Step 1: Decide Tax Regime

Before choosing a tax regime, salaried individuals need to decide which one they want to opt for. The old regime offered various exemptions and deductions, but it had a higher tax rate, whereas the new regime offered a reduced tax rate but no exemptions or deductions.

-Step 2: Verify Your Eligibility

Salaried individuals do not have to verify their eligibility; they can select the tax regime directly from the income tax return form.

-Step 3: Choose Suitable Tax Regime

Open the income tax form, which is ITR-1 or ITR-2. These forms have a section where the tax regime selection needs to be made. Choose the old or new tax regime based on your preference.

-Step 4: Check and Submit

Before submitting the ITR, cross-check every detail and ensure that it is correct. Then, use Aadhar OTP, bank account information or PAN to electronically validate your ITR. Once it is done, submit the ITR.

Procedure to Change Tax Regime for Profession and Business Individuals

-Step 1: Decide Tax Regime

The first step for individuals with income from a profession or business is to choose the tax regime they want to use when filing taxes.

-Step 2: Verify Your Eligibility

To verify their eligibility, they need to file form 10 IE and 10 IEA by July 31 of the assessment year. This change of regime can only be made once in a lifetime.

-Step 3: Changing to New Regime from Old Regime

If you want to change from the old regime to the new tax regime, then you have to fill out form 10 IE, which indicates that you want to switch to the new tax regime.

However, since the new tax regime is default, filing this form is not needed anymore. Then, when filing the ITR, choose the "New Tax Regime" option.

-Step 4: Changing to Old Regime from New Regime

If you wish to change to the old tax regime, then you need to fill out form 10 IEA, which indicates your desire to move to the old regime.

In this, you can not include your current year's return, exclusion or deductions that were available under the previous regime.

-Step 5: Double Check and Submit

After changing the regime, fill out the ITR form and verify all the details accurately. After verifying, electronically validate the form using Aadhaar OTP, PAN or bank account information. After that, submit your ITR.

These two forms play a crucial role in changing the tax regime. Form 10 IE was earlier used to select the new tax regime, but since the new tax regime is the default, individuals do not need to submit this form.

Form 10 IEA is still required if an individual wants to switch to the old tax regime. Taxpayers need to file this form before July 31 of the financial year. Failure to do so can result in a delay in tax filing or switching to a decided regime.

Since changing the tax regime can directly affect one's tax liability and basic exemption limit, it should be done carefully. Before changing the tax regime, taxpayers need to consider some pointers.

-Understand Your Tax Regime

Before deciding on a tax regime, you need to know it thoroughly. It is best to analyse deductions, tax rates and exemptions to understand the advantages of choosing the regime and saving tax.

-Evaluate Tax Liability

Another important thing to consider is knowing your tax liability. Knowing your tax liability will give you a clear picture of your income and deductions.

-Effect on Savings and Investment

Another thing to consider is the regime's effect on your income, investments and financial planning. Under the new tax regime, income or investments can not be claimed as deductions, so you should be aware of everything before making a decision.

-Review Documentation

After deciding on the regime, it is best to ensure that you have all the necessary documents and records to support your exemptions, deductions and income. This documentation needs to be organised and accessible for audit purposes or future reference.

**-Future Tax Planning **

Another important point to consider is how changing the tax regime will affect your future tax planning. It is best to consider various scenarios, such as life-altering events, changes in income, long-term financial goals and more. If the decided tax regime aligns with your future tax planning, then it is best to go with it.

Filing your income tax return on time is essential to avoid late fees from the income tax department. Many individuals seek ways to save on taxes while doing so. One effective method is investing in a health insurance plan.

Under Section 80D of the Income Tax Act, you can claim deductions on the premiums paid for medical insurance. Not only does this help reduce your tax burden, but it also provides invaluable financial security for you and your loved ones during medical emergencies. Investing in health insurance ensures both peace of mind and tax savings.

TATA AIG provides a wide range of health insurance plans tailored to meet your and your family's healthcare needs. Whether you are looking for family medical insurance, critical illness coverage, or senior citizen plans, we have options for everyone.

Additionally, premiums paid for senior citizen health insurance are eligible for a ₹50,000 tax deduction, while individuals below 60 years of age can claim up to ₹25,000 in deductions under Section 80D.

Beyond tax savings, our plans offer comprehensive benefits, including maternity coverage, newborn coverage and much more, ensuring enhanced protection and peace of mind.

Changing the tax regime while filing ITR is possible, however it is best to understand both the tax regime before making a decision. By knowing all about the old and new tax regimes, you can make informed decisions since they affect financial planning.

For salaried individuals, changing the tax regime can be done yearly while filing the income tax return. However, for individuals with income from a profession or business, it can be done once in a lifetime.

It is advisable to consult a tax expert to choose the most beneficial regime based on your financial situation.