ITR Filing for FY 2024-25: A Guide for Taxpayers on Switching Between Old and New Regimes
The new personal tax regime has officially become the default option for taxpayers starting from the financial year 2023-24. As individuals prepare to file their Income Tax Returns (ITR) for Assessment Year 2025-26, they must be aware of the implications of this change. Taxpayers now have the option to switch back to the old tax regime, but they must do so explicitly if they wish to avoid the default setting. This article outlines the process for making this switch and the considerations taxpayers should keep in mind.
Understanding the New Tax Regime
The new personal tax regime simplifies the tax structure by offering lower tax rates but removing most exemptions and deductions. It is crucial for taxpayers to understand that this regime is now the default option when filing ITRs. If an individual prefers the old tax regime, they must actively choose to opt out of the new system. According to tax expert Ishita Sengupta, taxpayers can make this selection by responding to a specific question in ITR Form 1 or ITR 2. The default response to the question, “Do you wish to exercise the option u/s 115BAC(6) of opting out of the new tax regime?” is set to ‘No’, meaning taxpayers must change it to ‘Yes’ if they want to revert to the old regime.
It is also important to note that if a taxpayer files their return after the due date, the new tax regime will automatically apply. However, if they submit a revised return, they can still choose their preferred regime, provided the original return was filed on time. This flexibility allows taxpayers to reassess their options even after the initial filing.
Switching Between Regimes: Key Steps
Taxpayers can switch between the new and old tax regimes each financial year, but there are specific steps to follow. For salaried individuals, the process is straightforward. They need to file their original return within the due date under section 139(1) and select the appropriate option in the ITR form. However, for those with business or professional income, the rules differ. They cannot switch between regimes every year. If they choose to opt out of the new regime, they can only revert to it once in the future.
To formally opt out of the new regime, taxpayers must submit a declaration using Form 10-IEA before the due date for filing their original return. This form is essential for documenting their choice and ensuring compliance with tax regulations. For the financial year 2024-25, the ITR 4 (SUGAM) form has been updated to require more detailed information from taxpayers opting out of the new regime, including previous filings and intentions for the current year.
Considerations for Taxpayers
Before making a decision on which tax regime to choose, taxpayers should conduct a thorough analysis of their financial situation. The old tax regime may still be beneficial for individuals with significant deductions or investments, particularly those exceeding Rs 8 lakh. However, for those with business income, careful evaluation of future tax scenarios is crucial before making a switch.
Taxpayers who filed ITR-1 or ITR-2 in the previous year must also confirm their choice for the current year and provide the necessary Form 10-IEA details if applicable. This requirement emphasizes the importance of staying informed and organized when it comes to tax filings. By understanding the implications of each regime and the process for switching, taxpayers can make informed decisions that align with their financial goals.
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