 "Can you switch tax regimes? rules for salaried and business taxpayers")
As Indians file their taxes, many of them are likely wondering if they should adopt the old or new regime. The first offers exemptions and deductions and the other lower tax rates but no deductions: either of them will shape your take-home income.
Can you switch between the two regimes? If yes, how often? Experts say that while salaried individuals have flexibility, those with business income face tighter controls. Here's a breakdown of what the rules allow, and the pitfalls to avoid.
Salaried individuals can switch regimes every year
Salaried taxpayers can toggle between the old and new regimes every financial year while filing their Income Tax returns (ITR). This means you don’t have to commit to one regime forever.
“A salaried individual has the flexibility to switch between the old and new tax regimes every financial year,” said Amit Bansal, partner at Singhania & Co., a legal consultancy firm. “They can reassess their financial situation and choose a regime that offers better tax benefits.”
Even if you declared a particular regime to your employer for the purpose of tax deducted at source (TDS), the choice isn’t binding.
“The intimation to the employer is only for TDS purposes,” said S R Patnaik, partner (head - taxation) at Cyril Amarchand Mangaldas. “The final regime selection must be made by the individual while filing their ITR.”
Restrictions on professionals, business income
If you have income from business or profession, you can switch from the new regime to the old regime only once. After that, unless your business income ceases, you cannot go back to the new regime.
Income earned by professionals such as Doctors, Lawyers, Accountants, etc. is termed professional income.
“Once individuals with business or professional income opt for the new tax regime, they can return to the old regime only once,” said Bansal. “This is to ensure consistency in tax planning and avoid regime-hopping.”
To exercise this switch, the taxpayer must file Form 10-IEA before the due date of filing their ITR. Missing this deadline means being locked with the default regime.
Can you change tax regime while filing ITR?
Experts say salaried individuals can change regimes at the time of filing their return, even if they picked another one for employer TDS purposes. But this has practical challenges.
“If a salaried person opts for the old regime at the time of filing but hasn’t submitted deduction proofs to the employer, the mismatch can trigger a notice,” said Aarti Raote, partner at Deloitte India, a professional services firm. “Form 16 would reflect a different regime, leading to delays in assessment.”
Common mistakes to watch out for
Experts flagged a few frequent errors:
- Not comparing both regimes carefully using reliable tax calculators.
- Assuming the employer’s regime choice is final, it’s not.
- Failing to maintain deduction proofs when switching back to the old regime.
- Missing deadlines for submitting forms like 10-IEA (for business professionals).
“The most important thing is that taxpayers must choose their regime before the due date for filing the ITR,” said Patnaik.
“One frequent mistake is not estimating income and deductions accurately before choosing a regime,” said Raote
Bottom line
According to rules, salaried individuals can switch regimes annually, while business professionals can do so only once, and with conditions. Making the right choice requires a proper evaluation of income, deductions, and future plans like home or education loans.
The tax regime you choose isn’t just a checkbox, it’s a financial strategy. Choose wisely, file on time, and when in doubt, consult a professional.