Individual taxpayers can change their preferred income tax regime at the time of filing their Income Tax Return (ITR). This flexibility is a key feature of the current tax system.
However, the rules differ based on the type of income earned.
For most salaried individuals filing ITR-1 or ITR-2, switching is simple. They can easily choose between the old and new tax regimes each year while filing their return.
The situation is different for taxpayers with business or professional income. These individuals file ITR-3 or ITR-4. The government allows them only one lifetime chance to switch from the new regime back to the old one.
New Regime is Now the Default
It is important to note that starting from the financial year 2023-24, the new tax regime is the default option. A taxpayer must actively choose to leave it if they prefer the old regime’s structure.
The Importance of Form 10-IEA
Taxpayers with business income must use Form 10-IEA to opt out of the new regime or to re-enter it. This form is mandatory for Individuals, HUFs, and other specified entities.
They must submit this form by the original due date of their return under section 139(1). This is required to make the switch official.
How to File Form 10-IEA
The process to file the form is online:
- Log in to the Income Tax Portal using your PAN and password.
- Navigate to ‘e-File’ > ‘Income Tax Forms’ > ‘File Income Tax Forms’.
- Find and select ‘Form 10-IEA’ for the correct Assessment Year.
- The form will auto-fill basic details like your name and PAN.
Based on your history, the form will pre-select the correct option (opt-out or re-entry).
Review the information, complete the verification process using an Aadhaar OTP or DSC, and submit.
Rules for Multiple Switches
The rules are strict for business taxpayers filing ITR-3 or ITR-4. If they choose to leave the new regime for the old one, they get only one chance to ever return to the new regime. After that, they cannot switch back to the old regime again.
Action for Salaried Taxpayers (ITR-1/ITR-2)
For those filing ITR-1 or ITR-2, the choice is made directly within the return. The form will ask if the taxpayer wishes to opt out of the new tax regime.
- Selecting ‘No’ means the return is filed under the new tax regime.
- Selecting ‘Yes’ means tax will be calculated under the old tax regime.
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