How many times a taxpayer is allowed to switch between old & new tax regime

Salaried taxpayers with non-business income can switch between tax regimes yearly. Those with business income who opt out of the new regime cannot re-enter later

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Starting from the financial year 2023-24 (assessment year 2024-25), the new tax regime has become the default option. This means that unless a taxpayer specifically chooses the old tax regime, tax will be deducted as per the new tax regime by default.

 

However, the rules for selecting the tax regime vary based on the source of income— individuals with salary income follow different guidelines compared to those earning from business or profession.

 

Let us first understand the new tax regime and the old tax regime, and then we will move on to how rules for selecting the tax regime vary based on the source of income:

 

Until March 31, 2025, zero tax is not applicable if the net taxable income exceeds Rs 7 lakh.  The income tax slabs under the new tax regime applicable from April 1, 2025, are as follows:

 

Income up to Rs 4 lakh: Nil

 

Income from Rs 4 lakh to Rs 8 lakh: 5 per cent

 

Income from Rs 8 lakh to Rs 12 lakh: 10 per cent

 

Income from Rs 12 lakh to Rs 16 lakh: 15 per cent

 

Income from Rs 16 lakh to Rs 20 lakh: 20 per cent

 

Income from Rs 20 lakh to Rs 24 lakh: 25 per cent

 

Income above Rs 24 lakh: 30 per cent

 

Deduction in new tax regime:

 

Section 24(b): Deduction for interest on housing loan for rental property

 

Section 80CCD (2): Deduction for employer’s contribution to the national pension scheme (NPS), limited to 14 per cent of salary

 

Budget 2025 has retained the existing income tax slabs under the old tax regime, with no changes announced for the FY 2025-2026.

  Tax slabs under the old tax regime:

 

Income up to Rs 2,50,000: Nil

 

Income from Rs 2,50,001 to Rs 5,00,000: 5 per cent

 

Income from Rs 5,00,001 to Rs 10,00,000: 20 per cent

 

Income above Rs 10,00,000: 30 per cent

 

The old tax regime also allows for various deductions, including:

 

Section 80C: Deductions up to Rs 150,000 for investments in PPF, ELSS, and LIC premiums.

 

Section 80D: Deductions for health insurance premiums.

 

Section 24(b): Deductions for home loan interest up to Rs 2,00,000.

 

Additional exemptions, such as benefits like HRA and LTA.

 

How rules for selecting the tax regime vary based on the source of income:

 

“Salaried taxpayers having non-business income will have the option to choose between the new and old tax regimes every year. Hence, they can switch between the two tax regimes every year without any restriction before the due date of filing the tax return,” said SR Patnaik, partner (head - taxation), Cyril Amarchand Mangaldas.

 

“Taxpayers earning ‘income from business and profession’ who wish to opt out of the new tax regime must submit Form 10-IEA by the due date stipulated under Section 139(1) for filing their income tax returns. Additionally, opting out of the old tax regime requires the completion of Form No. 10-IEA. It is important to note that individuals with business income can only make this choice,” said Aditya Chopra, Managing Partner, The Victoriam Legalis (TVL).

 

For example, if an individual with business income transitions from the old regime to the new regime in FY24, they will forfeit their eligibility to switch

 

Once a taxpayer with business income opts out of the new tax regime, they will not have the option to re-enter it at a later date.

 

“It is crucial for all taxpayers to thoroughly assess their financial circumstances and calculate their tax liabilities under both regimes, considering income, deductions, and investments, before deciding,” said Ritika Nayyar, partner, Singhania & Co.