With the 31 July deadline for filing income tax returns approaching, salaried taxpayers still have the option to review their tax regime and choose between the old and new tax regimes.
Although the new tax regime is the default option, taxpayers can switch between the two regimes at the time of filing their return and calculate their final tax liability accordingly.
Here are the key rules every taxpayer should know.
Can salaried taxpayers change their tax regime while filing ITR?
Yes. Salaried taxpayers can choose a different tax regime while filing their ITR, even if their employer calculated TDS under another regime.
“The tax regime selected by the employer for TDS purposes is only for withholding tax. The taxpayer is free to choose the more beneficial regime while filing the ITR. The final tax liability is determined based on the option exercised in the return,” explained Nishant Shanker, Tax & Investments Expert, Navraj Global Advisors.
Are rules different for salaried taxpayers and those with business income?
Yes. Salaried taxpayers have greater flexibility compared with individuals having business or professional income.
“Salaried taxpayers can choose between the old and new tax regimes every year while filing their return. However, taxpayers with business or professional income are subject to stricter provisions and cannot switch freely between regimes,” Shanker highlighted.
Divnay Bhutra S, Tax Expert at ClearTax, mentioned that taxpayers with business or professional income need to follow specific opt-in or opt-out procedures, including filing Form 10-IEA wherever applicable.
Will changing the regime impact refund or additional tax payment?
The final tax liability depends on the regime selected in the ITR and the deductions claimed under that regime.
Bhutra explained that “if the TDS deducted by the employer is higher than the final tax liability under the regime chosen in the ITR, the taxpayer may get a refund. If the final tax payable is higher, the taxpayer may need to pay the balance tax, and interest may also apply if there is outstanding tax”.
When can salaried taxpayers not change their tax regime?
While salaried taxpayers generally have the flexibility to change their regime, they must meet the conditions applicable to the selected option.
“For taxpayers opting for the old regime, it is important to ensure that they are eligible for the deductions and exemptions claimed and have the necessary documents to support them,” Shanker explained.
Bhutra highlighted that taxpayers can switch tax regimes only if they file their return correctly and within the prescribed timelines, which is 31 July for ITR-1 and ITR-2 filers.
“Taxpayers filing a belated return cannot opt for the old tax regime and may lose the flexibility available to those filing their original return within the due date. Salaried taxpayers having business or professional income also face restrictions in the yearly regime switch,” he added.
How to change tax regime while filing ITR?
Taxpayers can select their preferred tax regime while filing their return on the income tax e-filing portal. Bhutra shared the broad steps involved:
- Log in to the income tax portal and select the applicable ITR form.
- Choose the preferred tax regime in the relevant section of the return.
- Enter income details and claim deductions applicable under the selected regime.
- Complete additional compliance requirements, such as filing Form 10-IEA, if applicable.
Shanker advised taxpayers to compare their tax liability under both regimes before filing the return to ensure they choose the option that is more beneficial for them.
Disclaimer: This is only for informational and educational purposes. Please consult a qualified tax expert for the latest tax laws and regulations.
