Switching between the old and new tax regimes while filing your Income Tax Return (ITR) in India is a choice that taxpayers can make every year, depending on which option is more beneficial for them. The old tax regime allows for various deductions and exemptions, which can lower taxable income. On the other hand, the new tax regime, introduced in the budget of 2020, offers lower tax rates but with fewer exemptions and deductions.
Here's how you can switch between the two regimes while filing your ITR:
For Salaried Individuals
Inform Your Employer:
At the start of the financial year or at the time of joining a new employer, inform your employer of your choice of tax regime. This will help in the correct deduction of TDS (Tax Deducted at Source) from your salary. However, the choice of tax regime at the beginning of the year is only for TDS purposes and you are free to choose a different regime at the time of filing your ITR.
Filing ITR:
While filing your income tax return on the e-filing portal of the Income Tax Department, you will have the option to choose between the old and new tax regimes. The portal typically asks for your preference in the initial steps of filing your return. You can make the choice at this stage, regardless of the option you chose for TDS calculation by your employer.
For Individuals with Income from Business/Profession
Flexibility:
If you have income from a business or profession, you have the flexibility to choose between the old and new tax regimes every year if you are an individual or HUF (Hindu Undivided Family) without any business income. However, if you have business income and choose the new tax regime, you have only one opportunity to switch back to the old regime in your lifetime. Once you switch back to the old regime, you cannot choose the new regime in any subsequent year if you have business income.
Filing ITR:
Like salaried individuals, you'll select your preferred tax regime when filing your ITR. Ensure that you make this choice carefully, especially if you have business income, considering the long-term implications of your decision.
Steps to Change Tax Regime on E-Filing Portal
Login to the e-Filing Portal:
Go to the official Income Tax e-filing portal and log in with your credentials.
File Your Return:
Select the option to file your income tax return and choose the relevant assessment year.
Choose the Tax Regime:
During the process, you’ll be prompted to choose between the old and new tax regimes. Make your selection based on your calculation of which regime benefits you more. You can use the tax calculator available on the e-filing portal to compare the tax liability under both regimes.
Complete Filing:
Fill in the required details, verify your return, and then submit it.
It’s advisable to compute taxes under both regimes before making a decision. Consider using online calculators or consulting with a tax professional to determine which regime will be more tax-efficient based on your income, deductions, and exemptions.