New vs old Income Tax regime Change Rules: Taxpayers, now have the option to choose between the New and Old Tax Regimes for filing ITR. Both the Tax Regimes come with certain benefits. Under the Income Tax rules, salaried persons, who do not have any income from business or profession, can opt for the more beneficial Income Tax Regime before filing ITR every year. But depending on the annual salary, income and deductions, one should decide on which regime to select for filing ITR.
However, taxpayers having income from businesses and professions should choose their tax regimes carefully. As they can withdraw their option only once.
“The option of old tax regime or new tax regime shall be chosen by filing Form 10-IE before the income tax return being filed. An individual who does not have income from business or profession, shall, at the time of filing his income tax return for each year, be eligible to choose the tax scheme that is more beneficial to him for that particular year,” said Sundara Rajan TK, Partner at DVS Advisors LLP.
Thus, for persons having income other than income from business or profession, the option of choosing old tax regime or new tax regime, will be available every year. However, the rule is different for people having income from business or profession.
“For persons having income from business or profession, the option, once exercised, can be withdrawn only once and such person shall not be eligible to opt for the new regime again unless he ceases to have income from business or profession,” Rajan said.
Explaining this rule for people having income from business and profession, Dr. Suresh Surana, Founder, RSM India, told FE Online, “The provisions of the Income Tax Act provides for the taxpayer with an option to shift from old tax regime to new tax regime and vice versa on an annual basis. However, such option is restricted in case of those individuals deriving income from business or profession. In such a case, the new tax regime option once exercised by the taxpayer deriving such business income, the same would be made applicable for all the subsequent assessment years and would be allowed to be withdrawn only once for a financial year other than the year in which it was exercised.”
Dr Surana further said that the taxpayer should decide upon the beneficial option under the old tax regime vis-à-vis the new tax regime on or before the date of filing his tax return.
Form 10IE is to be furnished before filing the income tax return of the relevant financial year.
Which regime is better
Whether or not someone should opt for the new tax regime depends on the quantum of deductions that will be claimed.
According to Sundara Rajan TK, the new tax regime provides for payment of tax at a lower rate, subject to the foregoing of specified exemptions and deductions viz. the standard deduction of Rs 50,000, professional tax, house rent allowance, leave travel concession, interest on housing loan on self-occupied/unoccupied property and Chapter VI-A deductions (life insurance premium, investment in provident fund, interest earned on savings account), amongst others.
“For example, if your annual income is Rs 10,00,000 and you are claiming standard deduction of Rs 50,000 and deduction under Chapter VI-A upto Rs 1,50,000, then the tax payable under the old tax regime will be Rs 75,400 (including cess), whereas the tax payable under the new tax regime shall be Rs 78,000 (including cess). To give an approximate number, considering the same salary of Rs 10,00,000, if the quantum of deductions is less than Rs 1,87,500 (including standard deduction of Rs 50,000), then the new tax regime will be beneficial. If your allowable deductions are more than Rs 1,87,500 you can continue under the old tax regime, which will result in higher tax savings,” he said.