Income Tax Return: Can You Switch Between New and Old Tax Regime Every Year?

The new income tax regime offers lower tax rates and higher standard deduction compared to the old tax regime. (AI image)

When filing your income tax return every year, choosing between the old and new tax regimes is important. The new regime offers lower tax rates and a higher standard deduction. On the other hand, the old regime allows for popular deductions and exemptions like Section 80C, 80D, House Rent Allowance (HRA), and Leave Travel Allowance (LTA).

As your financial situation changes over the years, you might find it beneficial to switch between the old and new regimes. But what if you opted for the new tax regime last year and realize that the old regime results in a lower tax outgo this year? A common question is: Can you choose between the new and old income tax regimes every year, or is it a one-time choice?

Old vs New Tax Regime: Can You Switch Every Year?

According to Sudhakar Sethuraman, Partner at Deloitte India, the Income-tax Act, 1961 allows individual taxpayers (who do not have business income) to choose between the regular (old) and simplified (new) tax regimes each financial year.

“The choice of income tax regime is at the discretion of the individual. They can choose every year (provided they don’t have business income) depending on what is beneficial for them,” he explains.

Sudhakar Sethuraman further clarifies, “Even if an individual had declared one tax regime to the employer for TDS purposes, they can change the choice of tax regime at the time of filing the tax return (if they do not have business income).”

Important Points to Note

• The new income tax regime is now the default tax regime.
• If you wish to file ITR under the old income tax regime, you will need to opt for it.
• You can opt for the old income tax regime at the start of the financial year by informing your employer or at the time of filing the income tax return.
• You can opt for the old income tax regime at the time of ITR filing only if you file your tax return within the due date.
• Once the deadline to file ITR is crossed, you will automatically be switched to the new income tax regime.

Understanding these points can help you make an informed decision about which tax regime to choose each year, ensuring you optimize your tax outgo based on your financial situation.