Many taxpayers are curious about the flexibility to alter their income tax regime while filing their income tax return (ITR). The introduction of the new tax regime by the Indian government in 2020 (FY 2020-21) provided taxpayers with an additional option to compute their tax liability alongside the old tax regime. As the new tax regime has evolved over the past five years, there have been notable changes aimed at enticing taxpayers to transition from the old tax regime.
Changes in Rules for Tax Regime Switching
The Union Budget 2023 brought significant amendments to the rules regarding switching income tax regimes. Notably, the new tax regime is now set as the default regime in the absence of a taxpayer’s declaration of preference. Additionally, individuals with business income are limited to a single regime change, prohibiting a return to the old regime if they opt for the new taxation system.
Salaried Taxpayers’ Flexibility
Salaried individuals retain the flexibility to switch tax regimes on an annual basis. Even if they have chosen to continue with one regime throughout the financial year, they are allowed to revert to the previous regime at the time of filing their income tax return.
Considerations for Taxpayers with Business/Profession Income
Taxpayers earning income from a business or profession may only change regimes once. Consequently, they can transition to a new or old regime when filing their income tax return. It is essential for these individuals to file Form 10IE along with their ITR to declare their intention to switch tax regimes.
Understanding Form 10IE
Individuals or Hindu Undivided Families (HUFs) with business or professional income are mandated to submit Form 10IE. This form serves as a declaration of their decision to switch to the new tax regime and must be filed prior to the submission of the ITR. Through this declaration, taxpayers inform the Income Tax Department of their revised choice.
The evolving landscape of income tax regimes underscores the importance for taxpayers to comprehend their options and obligations when considering a switch in tax regime. Whether a salaried individual or a business/profession earner, staying abreast of the regulations and procedural requirements is paramount to ensure compliance and make informed decisions.
