Tax Talk: Onus on taxpayer to exercise option of old tax regime

By Neeraj Agarwal

IN BUDGET 2023, the finance minister has provided relief to individual taxpayers by introducing revised slab rates, incremental rebate and has also reduced surcharge under the new tax regime. The proposed amendments will benefit taxpayers who opt for the new tax regime. But for those, who wish to claim exemptions on HRA, interest on housing loan and deductions under Section 80C, 80D, etc., the old tax scheme may still prove to be more beneficial. So, how should taxpayers navigate the tax regime?

New tax regime is the default tax regime

A lot of confusion followed the finance minister’s announcement that the new tax regime will be the default tax regime. What this amendment does, is provide a deeming provision. So, by default, income tax of the taxpayer will be calculated as per the new tax regime, unless the taxpayer specifically opts for the old tax regime within the prescribed time limit.

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How to opt for old tax regime

The time limit to opt for the old tax regime depends on the nature of income. For individuals earning income from business and profession, the option must be exercised on or before the due date of filing the income tax return (ITR) under Section 139(1). The option once exercised applies to all subsequent years and can be withdrawn or changed thereafter only once. For a change in the option, one must file an application in prescribed Form 10-IE on or before the due date of filing the ITR for that particular year. For others, the option must be exercised along with the return of income to be furnished under Section 139(1) of the Act and can be changed every year.

When to decide between the old and the new

For individuals with income from business and profession, since the option exercised can be changed only once, the decision between the old and the new tax regime should be made after considering the estimated income for the current and subsequent years.

For others, the decision should be made at the start of the year, because the decision will impact the amount of TDS deducted for salaried employees and advance tax for others. The declaration filed with the employer is not absolute, as the option is exercised only at the time of filing ITR.

Remember, by making the new tax regime default, the onus is placed on the taxpayer to exercise the option and to select between the old and the new tax regime.

There is no doubt that the ministry endeavours towards making the new tax scheme attractive to the taxpayers. In an effort to simplify the tax regime, it has made the new tax scheme the default regime. However, this amendment will only place additional onus on the taxpayer to take informed decisions.

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New vs old

* Those with income from business and profession should first consider the estimated income for the current and subsequent years

* Others must decide at start of the year, as it will impact amount of TDS on salary & advance tax

The writer is partner, Nangia Andersen India. Inputs from Neetu Brahma