ITR filing 2025: In the evolving landscape of India's tax policies, the financial year 2023-24 marks a significant shift with the new tax regime becoming the default for taxpayers. This change requires salaried employees to make a deliberate choice about their preferred tax regime at the onset of each financial year. If they fail to declare their preference for the old tax regime, taxes will automatically be deducted under the new regime.
This development necessitates an understanding of when and how taxpayers can switch between the regimes, especially for individuals with non-business income. The Income-tax department has clarified that "an individual with non-business income can switch between the new and old tax regimes every year. Within the same year, again, it is emphasised that the choice of old tax regime can be made only before the due date of filing the return u/s 139(1) of I-T Act".
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Salaried taxpayers vs business professionals
For individuals with business or professional income, the flexibility to switch between tax regimes is restricted. These taxpayers cannot switch annually. The Income-tax department specifies that "an Individual, HUF, AOP (not being co-operative societies), BOI or Artificial Juridical Person with business or professional income will not be eligible to choose between the two regimes every year. Once they opt out of the new tax regime, they have only one chance for switching to new regime. Once they switch back to the new regime, they won’t be able to choose old regime anytime in future." This limitation underscores the importance of a carefully considered decision, as a switch back to the new regime precludes any future reversion to the old regime.
Due date
While salaried employees have the flexibility to change their tax regime when filing their income tax returns, they must do so before the due date. If excess taxes have been deducted under the new regime, they can opt for the old regime during return filing and claim a refund. The requirement to declare their chosen regime annually is crucial to avoid automatic deductions under the new regime. This has been the practice since the new tax regime's introduction, which came into effect as default from the financial year 2023-24. The change aims to simplify tax compliance but requires taxpayers to be proactive in their regime selection to optimise their tax benefits.
Old Tax Regime vs New Tax Regime
The contrasting features of the old and new tax regimes offer varied advantages. The old tax regime allows for numerous deductions but at higher tax rates, while the new regime offers lower tax rates with fewer deductions. This structural difference means the decision on which regime is more beneficial depends heavily on an individual's specific financial situation. Each taxpayer must weigh the potential tax savings from deductions against the benefits of a lower tax rate to make an informed choice. The Income-tax department's guidelines urge taxpayers to make this decision before the due date of filing returns under Section 139(1) of the Income-tax Act to ensure compliance and optimise tax efficiency.
Overall, the introduction of the new tax regime as the default option marks a strategic shift in India's taxation policies. It requires taxpayers, particularly those with non-business incomes, to be vigilant in their annual regime declaration to avoid automatic deductions under the new regime. For business professionals, the one-time switch opportunity necessitates a strategic choice, as future flexibility is limited. The dual regime system, with its distinct features, demands careful evaluation to leverage its benefits effectively.