Can You Switch Tax Regime While Filing ITR? Here's Everything You Need to Know

New Delhi With the Income Tax Return (ITR) filing season in full swing, many taxpayers are wondering whether they can switch between the old and new tax regimes while filing their returns for the financial year 2024-25. The answer is yes, but it comes with a few important conditions and procedures that every taxpayer should be aware of.

ITR filing deadline Two Tax Regimes, Two Different Approaches

The Indian tax system currently offers two regimes:

• Old Tax Regime: Allows several exemptions and deductions (like Section 80C, HRA, LTA, etc.), making it beneficial for those with investments and housing benefits.

• New Tax Regime (under Section 115BAC): Offers lower tax rates but fewer deductions, making it suitable for those with minimal claims.

Under the new regime, individuals can have an annual income of up to ₹7 lakh tax-free, which effectively extends to around ₹12 lakh when standard deductions are considered.

Switching Between Tax Regimes What the Rules Say

According to the Income Tax rules:

• Salaried individuals can switch between old and new tax regimes every year while filing their ITR.

• The option to switch is available directly in the ITR form, where the taxpayer must indicate whether they wish to opt out of the default new tax regime.

For example, if you filed under the old regime in FY 2023-24, you can switch to the new regime for FY 2024-25 and vice versa.

However, those with business or professional income must be more careful, as they are allowed to switch regimes only once. After that, switching back may require permission from the tax authorities.

Default Regime and What Happens If You Don’t Choose

When filing your ITR, if you do not select any option, the new tax regime under Section 115BAC becomes the default. In the form, a question asks whether you want to opt out of the new regime:

• Select “Yes” to choose the old regime, and your taxes will be calculated accordingly.

• Select “No” (or leave it blank), and your taxes will be processed under the new regime.

This allows you to choose the tax regime that best fits your income structure and deductions, giving flexibility to optimize your tax outgo.

Final Takeaway

Taxpayers, especially salaried individuals, should carefully evaluate which regime suits them better each year before filing ITR. A proper comparison of tax liability under both regimes can help in maximizing savings. Tools like income tax calculators or consulting a tax advisor can aid in making the right decision.