How Many Times Taxpayer Can Switch between Old and New Tax Regime

ITR Filing 2025 How Many Times Taxpayer Can Switch between Old and New Tax Regime

Section 115BAC of the Income Tax Act, 1961, deals with the option for individuals and Hindu Undivided Families (HUFs) to pay income tax under a new, concessional tax regime. Here’s a breakdown of how the switching between the old and new tax regimes works:

The article provides a comparison of the old and new tax regimes in India for the assessment year 2025-26. The old tax regime allows for various deductions, exemptions, and rebates to reduce taxable income, but has higher tax rates. The new tax regime offers lower tax rates but fewer deductions and exemptions. The choice between the two regimes depends on individual financial situations and tax planning goals.

Two Tax Regimes:

- Old Tax Regime: This regime allows taxpayers to claim various exemptions and deductions, such as those under Section 80C, 80D, HRA, etc.

- New Tax Regime (115BAC): This regime offers lower tax rates but requires taxpayers to forego most exemptions and deductions.

Deducctions Allowed in Regime

Old Tax Regime: Deductions, Exemptions, and Rebate Available

Deductions: Taxpayers can claim various deductions under sections 80C (investment in PPF, ELSS, NSC, EPF, tuition fees for children, principal repayment on home loans), 80D (health insurance) HRA [10(13A)], home loan interest under section 24(b), 80E (Interest on education loans), 80G (Donations to eligible charitable institutions), 80TTA/80TTB (Interest income on savings accounts or deposits for senior citizens), LTC [10(5)].
Standard deduction of INR 50,000 for salaried individuals and pensioners.

Rebate under Section 87A (up to INR 12,500): Available for individuals with income up to INR 5 lakh, making income effectively tax-free up to this level.

New Tax Regime: Deductions, Exemptions, and Rebate Available

Standard Deduction of INR 75,000 for salaried individuals and pensioners (from FY 2024-25).
Rebate under Section 87A (up to INR 25,000): Available for individuals with income up to INR 7 lakh, making income effectively tax-free up to this level.
If the total income exceeds INR 7 lakhs, then marginal relief up to the difference between the tax payable on such income and the amount by which it exceeds INR 7 lakhs.

Slab Rates in Old Tax Regime

Slab Rates in Old Tax Regime AY 2025-26

Net income range (INR)	Resident Super Senior Citizen	Resident Senior Citizen	Any other Individual
Up to 2,50,000	Nil	Nil	Nil
2,50,001-3,00,000	Nil	Nil	5%
3,00,001-5,00,000	Nil	5%	5%
5,00,001-10,00,000	20%	20%	20%
Above 10,00,000	30%	30%	30%

Note: ‘Super senior citizen’ means an individual whose age is 80 years or more at any time during the relevant previous year. ‘Senior citizen’ means an individual whose age is 60 years or more at any time during the relevant previous year but less than 80 years on the last day of the previous year.

Surcharge: Applicable at different rates based on income levels.
Health & Education cess @4%.

Slab Rates in New Tax Regime AY 2025-26

The tax slab rates for the new tax regime for the assessment year 2025-26 are as follows:

Total Income (INR)	Rate
Up to 3,00,000	Nil
From 3,00,001 to 7,00,000	5%
From 7,00,001 to 10,00,000	10%
From 10,00,001 to 12,00,000	15%
From 12,00,001 to 15,00,000	20%
Above 15,00,000	30%

Surcharge: Applicable at different rates based on income levels.
Health & Education cess @4%.

Switching Rules:

- Salaried Individuals and other person having No Business Income):
  - These taxpayers can choose between the old and new tax regimes every financial year. They can switch back and forth as per their convenience.
- Individuals with Business Income:
  - These taxpayers have more restrictions.
  - They must choose their regime before the due date for filing their income tax return.
  - Once they opt for the new regime, they can switch back to the old regime only once in their lifetime (excluding the year of opting in). After that single change back to the old regime, they cannot opt back into the new regime again, unless they cease to have buisness income.
  - After the financial year 2023-2024, the new tax regime becomes the default tax regime. However, people with buisness income still have the restriction of only being able to switch once.
Post Financial Year 2023-2024:
- The new tax regime has become the default tax regime.
- The tax slabs in the new regime have been altered.
- The rules regarding switching between the regimes as stated above, remain in effect.

Example Scenarios:

Salaried Individual (No Business Income):
- Mr. A is a salaried employee. In FY 2023-24, he opts for the old tax regime.
- In FY 2024-25, he can choose to switch to the new tax regime.
- In FY 2025-26, he can again switch back to the old tax regime.
- He can continue to switch every financial year.
Individual with Business Income:
- Mr. X runs a retail business. For FY 2024-25, he analyzes his finances and finds the old tax regime more beneficial.
- He exercises the option to opt out of the new regime and chooses the old regime before the due date for filing his income tax return.
- For the FY 2025-26, he can choose to stay in the old regime, or switch back to the new regime.
- If he switches to the new regime for FY 2025-2026, he can never switch back to the old regime again, as long as he has buisness income.
Individual with Business Income – Cessation of Business:

- Mr. Z ran a consulting business. In FY 2024-25, he opted for the old regime.
- In FY 2025-2026, he closed his consulting business and is now only receiving income from investments.
- Because he no longer has business income, he can now choose to opt for the new tax regime. From that point on, he can then switch between the regimes annually.

In summary:

The default is the new regime.
Business persons have a one time switch from the new regime to the old regime.
Non buisness persons can switch every year.
If a buisness person stops having buisness income, they then gain the ability to switch every year.

1. Question: “If I have both salary income and income from freelancing (which is considered business income), how do the switching rules apply to me?”

Answer: Since you have business income (freelancing), the stricter rules for business income apply. You can switch from the new regime to the old regime only once. once exercised for any previous year it can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise the option.

2. Question: “What happens if I forget to choose a regime by the due date of filing my return?”

Answer: From FY 2023-24 onward, the new tax regime is the default. If you fail to choose the old regime by the due date (31st July for non Audit cases and 31st Oct for Audit Cases) , you’ll be taxed under the new regime. If you have buisness income, you will have locked yourself into the new regime, unless you switch in a future year.

3.Question: “Are there any specific forms I need to fill out to opt for the old or new tax regime?”

Answer: Yes, the Income Tax Department prescribes specific forms 10IEA and procedures. When filing your income tax return (ITR), you’ll need to indicate your chosen regime within the ITR form itself. The ITR forms themselves contain the required declarations.

4. Question: “If I have a loss from my business, can I carry it forward if I opt for the new tax regime?”

Answer: yes you can claim but you have to careful that under the new tax regime (115BAC), you cannot carry forward losses or claim depreciation from earlier years if those losses or depreciation are related to deductions you are not allowed to claim under the new regime.

5. Question: “I am a senior citizen. Are there any special provisions for me under the new tax regime?”

Answer: No, the tax slabs and rules under the new tax regime are the same for all individuals, regardless of age. The basic exemption limit has been improved in the new regime, and that applies to all ages.

6. Question: “Can I change my mind about the tax regime after filing my income tax return?”

Answer: you can change your regime before due date Old to New regime or New to Old regime. But after the Due date you have to file ITR under New regime only.

7. Question: “If my business income is very small, does it still count as business income for the switching rules?”

Answer: Yes, any income classified as “income from business or profession” will trigger the stricter switching rules. The amount of income is not relevant.

8. Question: “Are all deductions disallowed in the new tax regime?”

Answer: Most deductions and exemptions are disallowed, but some exceptions exist. For example, the employer’s contribution to the National Pension Scheme (NPS) under Section 80CCD(2) is still allowed.

9. Question: “How do I calculate which tax regime is more beneficial for me?”

Answer: You should calculate your tax liability under both regimes. To do this, you’ll need to:

List all your income sources.
Calculate your eligible deductions and exemptions under the old regime.
Calculate your tax liability under both regimes using the respective tax slabs.
Compare the results to see which regime results in a lower tax liability. Online tax calculators and professional advice can be very useful.

Q10 If a salaried employee opted old regime with his employer can he opt new regime while filing his ITR

It’s important to clarify the relationship between an employee’s declaration to their employer and the actual filing of their Income Tax Return (ITR). Here’s a breakdown:

Key Points:

Declaration to Employer:
- During the financial year, an employee often provides their employer with a declaration of their intended tax regime (old or new). This declaration helps the employer calculate and deduct Tax Deducted at Source (TDS) from the employee’s salary.
- However, this declaration to the employer is primarily for TDS calculation purposes.
ITR Filing:
- When filing the ITR, the employee has the final say in choosing their tax regime.
- Therefore, a salaried employee can indeed choose a different tax regime while filing their ITR than the one they declared to their employer.
- Essentially, the ITR filing overrides the earlier declaration to the employer.
Salaried Employees Flexibility:
- Salaried employees (those without business income) have the flexibility to switch between the old and new tax regimes every financial year when filing their ITR.

Example:

Let’s say a salaried employee, Ms. A, declared to her employer at the beginning of the financial year that she would opt for the old tax regime. Based on this, her employer deducted TDS accordingly.
However, by the end of the financial year, after calculating her taxes, Ms. A realizes that the new tax regime is more beneficial for her.
When filing her ITR, she can choose the new tax regime. If excess TDS has been deducted, she will receive a refund.

In summary:

The declaration to the employer is for TDS purposes.
The ITR filing is the final determination of the tax regime.
Salaried employees have the flexibility to change their regime during ITR filing.

Therefore, yes, a salaried employee can opt for the new regime while filing their ITR, even if they opted for the old regime with their employer.

Q11 : How can one determine which regime is beneficial for him/her?

Ans: One can choose between the regimes based on their financial situation, including income, deduction & exemption eligibility, and overall tax planning goals.

Old Tax Regime is beneficial to:

Those with significant investments in tax-saving instruments.
Individuals with high deductions and exemptions, like medical insurance, home loans, and children’s education expenses.
People who prefer the flexibility to structure their finances around various tax-saving avenues.

New Tax Regime is beneficial to:

Individuals who do not have significant deductions or investments in tax-saving instruments.
New entrants to the workforce, who may prefer lower tax rates with few obligations for financial planning.
Those with a straightforward income structure who prefer ease of calculation over tax-saving investments.

Q12: How to choose the tax regime each financial year?

Though the new tax regime is the default tax scheme, a taxpayer can choose between the two regimes based on their preference. Salaried individuals can switch between the two regimes every financial year when filing their tax returns. Individuals with business income can opt for the Old Tax Regime only once, and if this option is chosen, they must file Form No. 10-1E on or before the date of filing the ITR.

Q13: Comparison of exemption/deductions available under the old tax regime and new tax regime of Section 115BAC.

Particulars	Old tax regime (F.Y. 2024-25)	New tax regime (F.Y. 2024-25)
Income level for rebate eligibility	INR 5 lakhs	INR 7 lakhs
Standard Deduction	INR 50,000	INR 75,000
Rebate u/s 87A	INR 12,500	INR 25,000
Standard Deduction [Section 16(ia)]	Available	Available
Leave Travel concession [Section 10(5)]	Available	Not Available
House Rent Allowance [Section 10(13A)]	Available	Not Available
Official and personal allowances (other than those as may be prescribed) [Section 10(14)]	Available	Not Available
Allowances to MPs/MLAS [Section 10(17)]	Available	Not Available
Entertainment Allowance [Section 16(ii)]	Available	Not Available
Professional Tax [Section 16(iii)]	Available	Not Available
Interest on housing loan for self-occupied house property [Section 24(b)]	Available	Not Available
Deduction under Sections 80C to 80U other than specified under Section 80CCD(2), and Section 80CCH(2) [Chapter VI-A]	Available	Not Available
Set-off of any loss under the head “Income from house property” with any other head of income	Available	Not Available
Exemptions or deductions for allowances or perquisites provided under any other law for the time being in force	Available	Not Available

Q14 : Whether any benefit/special advantage in tax rates are provided to senior citizens under the New Tax Regime?

Ans. In the old tax regime, the basic exemption limit for senior citizens is INR 3,00,000/- and for super senior citizens, it is INR 5,00,000/-. In the new tax regime, no income tax is payable up to the total income of INR 7 lakh.

Q15 : What should the employee keep in mind before choosing any of the regimes?

Ans: Usually, the employers ask employees to declare their regime choice at the beginning of the financial year for TDS purposes. However, the employee can change his/her choice while filing their return.

Q16 : How is capital gain taxed in the two regimes?

Ans. Capital gains are taxed the same way under both regimes. The tax treatment for short-term and long-term capital gains remains unaffected by the choice of tax regime.

Q16 : Is there any tool to help or assist the taxpayer to decide between the two regimes?

Ans. Yes, the Income Tax Department’s website provides a comparison tool to aid in making an informed decision. The Income Tax Website www.incometaxindia.gov.in provides a comparison tool to help taxpayers.

Note: From A.Y. 2024-25, the default tax regime will be the new tax regime of section 115BAC, and a taxpayer needs to explicitly opt out of the new tax regime and choose to be taxed under the old tax regime. Further, there is no penalty for changing regimes (in the case of business income, it can be done only once).

Important Notes:

The choice of tax regime should be made after careful consideration of individual financial circumstances.
Taxpayers should compare their tax liabilities under both regimes to determine which is more beneficial.
- It is always best to consult with a tax professional for personalized advice.