Are you, like many taxpayers, curious about whether the tax department will permit changing the income tax regime while filing income tax return (ITR) for the assessment year 2024-25? The Indian government introduced the new tax regime in the fiscal year 2020-21, providing taxpayers with an additional option alongside the old tax regime for calculating their tax liability.
Now, it has been five years since the introduction of the new tax regime, and during this time, several changes have been made to make the new regime more attractive, aiming to encourage taxpayers to switch from the old tax regime. Initially, when the new tax regime was introduced, there were no restrictions on how many times one could change tax regimes, regardless of the taxpayer’s status. Both non-salaried and salaried taxpayers were permitted to switch tax regimes the following year from the one they had chosen in that particular financial year.

Revisions to Tax Regime Switching Rules

The Union Government’s Budget of 2023 brought significant amendments to the regulations governing the transition between income tax regimes. Among these alterations, one pivotal change was the designation of the new tax regime as the default option if a taxpayer does not declare a preference for a regime. Additionally, individuals earning income from business activities, who are not on a salary basis, are now restricted to a single switch of tax regime. This implies that once they opt for the new taxation system, they are ineligible to revert to the old regime.

Can salaried taxpayers change their tax regime?

Certainly, if you’re a salaried individual, you have the flexibility to change your tax regime each financial year. Additionally, you retain the option to revert to the previous tax regime when filing your income tax return, even if you opted for the alternative regime during the financial year. Therefore, if you find that the new tax regime offers more favorable tax slabs and potential tax savings, you can transition from the old regime, even if you provided investment proofs to your employer based on calculations under the previous tax regime.

Taxpayers earning income from business or a profession

Individuals earning income from a business or profession are restricted to a single change in tax regimes. However, this one-time change enables them to transition between the new and old regimes when filing their Income Tax Returns (ITR). It’s mandatory for them to file Form 10-IE along with their ITR if they choose to switch tax regimes.

What does Form 10IE entail?

Individuals or Hindu Undivided Families (HUFs) earning income from business or a profession must submit Form 10IE. This form serves as a declaration indicating your transition to the new tax regime. It’s essential to make this declaration prior to filing your Income Tax Return (ITR). By completing and submitting this form, you essentially notify the Income Tax Department of your revised choice regarding tax regimes.