ITR Filing for FY 2025-26: Is It Possible to Alternate Between New and Old Income Tax Regimes Annually?

Individuals filing their income tax returns for FY 2025-26 face a crucial decision: whether to choose the old or new tax regime. This choice can significantly impact tax savings, and the optimal option may vary from year to year based on personal financial situations. For instance, recent home purchases may make the old regime more appealing due to its deductions, while a repaid home loan could favor the new regime.

Switching Between Tax Regimes

The new income tax regime is the default for individual taxpayers, but the ability to switch between the old and new regimes depends on the type of income. Richa Sawhney, Partner Tax at Grant Thornton Bharat LLP, explains that individuals with business or professional income must commit to their choice for subsequent years once made. They can withdraw this option only once, unless they no longer have business income.

Conversely, individuals without business or professional income can change their tax regime annually. This flexibility allows them to reassess their financial situation each year and select the regime that offers the most tax benefits. Sawhney advises taxpayers to evaluate the potential savings under each regime before making a decision.

Filing Deadlines and Considerations

Taxpayers must file their returns by July 31, 2026, to opt for the old tax regime. Late filings will automatically default to the new regime. Sawhney notes that the different rules for taxpayers with business income reflect a deliberate policy choice. The complexities of business income, including factors like depreciation and carried-forward losses, necessitate a more stable tax strategy.

This approach aims to provide continuity and discourage frequent switching for short-term tax advantages. For those with business income, the decision becomes a strategic choice rather than a simple annual selection. Section 115BAC will apply to income returns for FY 2025-26, which are due in July or August 2026.

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