The Finance Act 2023 has changed Section 115BAC starting from the financial year 2023-24 (assessment year 2024-25), making the new tax regime the default for individuals.
However, eligible taxpayers can choose to opt out of the new tax regime and stick with the old tax system if they prefer.
The old tax regime refers to the income tax calculation system and tax slabs that were in place before the new tax regime was introduced by the government of India.
In “non-business cases,” taxpayers can choose which tax regime to use each year when filing their Income Tax Return (ITR), and they must do this by the income tax return filing deadline specified in section 139(1).
For taxpayers with “income from business and profession” who want to opt out of the new tax regime, they must submit Form 10-IEA by the deadline set under section 139(1) for filing their income tax return.
To withdraw from the old tax regime, taxpayers must also submit Form No. 10-IEA. The new tax regime is the default, but taxpayers can still choose to stick with the old regime.
Frequently Asked Questions (FAQs)
What distinguishes the old tax regime from the new tax regime?
The old and new tax regimes feature different tax slabs and rates.
The old regime allows for various deductions and exemptions, while the new regime provides lower tax rates but restricts the number of deductions and exemptions available.
Which is preferable: the old tax regime or the new tax regime?
The choice between the two tax regimes can differ for each individual. It’s recommended to conduct a comparative analysis of both options and select based on personal needs.
Taxpayers can estimate and compare their tax liability under each regime.
Is it necessary for employees to inform their employers about their chosen tax regime?
Yes, employees must inform their employers about their chosen tax regime during the year.
If they fail to do so, it will be assumed that they have opted for the new tax regime, and the employer will deduct taxes based on the rates specified under section 115BAC.
However, notifying the employer does not constitute an official option to opt out of the new tax regime. Employees must separately exercise this option before the due date set under section 139(1) for filing their income tax return.
As a salaried taxpayer, can I claim HRA exemption under the new tax regime?
In the old tax regime, House Rent Allowance (HRA) is exempt under section 10(13A) for salaried individuals. However, this exemption is not available in the new tax regime.
Am I eligible for the standard deduction under the new tax regime?
Yes, a standard deduction of Rs. 75,000, or the amount of salary if lower, is available for the new tax regimes from FY 2024-25 onwards.
For the old tax regime, standard deduction is Rs 50,000.
In the new tax regime, can I claim deductions under Chapter VI-A, such as sections 80C, 80D, 80DD, and 80G, when filing my ITR for FY 2024-25?
In the new tax regime, deductions under Chapter VI-A cannot be claimed, except for those under sections 80CCD(2), 80CCH, and 80JJAA, as per Section 115BAC of the Income Tax Act, 1961.
If a taxpayer wishes to claim other deductions, they must choose the old tax regime by selecting the “Yes” option in ITR-1 or ITR-2, or the “Yes, within due date” option in ITR-3 or ITR-4, in the section provided for opting out under Schedule ‘Personal Information’ or ‘Part A General’ in the respective ITR.
Can I claim a deduction for interest on borrowed capital of Rs. 2,00,000 for a self-occupied property under Income from House Property in the new tax regime?
In the new tax regime, the deduction for “interest on borrowed capital for self-occupied property” is not permitted under Income from House Property, according to Section 115BAC of the Income Tax Act, 1961.
If a taxpayer wants to claim this deduction, they must opt for the old tax regime by selecting “Yes” in ITR 1 or ITR-2, or the “Yes, within due date” option in ITR-3 or ITR-4 in the section provided for opting out in the ITR form.
As a senior citizen, the old tax regime offers special advantages in tax rates. Are there similar benefits available in the new tax regime?
In the old tax regime, the basic exemption limit for senior citizens was Rs. 3,00,000, and for super senior citizens, it was Rs. 5,00,000.
In contrast, the new tax regime allows for no income tax to be payable on total income up to Rs. 7,00,000.
Is there a difference in the tax rebate under Section 87A between the old and new tax regimes?
In the old tax regime, a resident individual with total income not exceeding Rs. 5,00,000 is eligible for a rebate of 100% of income tax, up to a maximum of Rs. 12,500.
In the new tax regime, effective from 01-04-2024, the rebate under Section 87A will apply as follows:
- For a resident individual with total income not exceeding Rs. 7,00,000, the rebate will be 100% of the income tax, or Rs. 25,000, whichever is lower.
- For total income exceeding Rs. 7,00,000, if the income tax payable exceeds the amount by which the total income exceeds Rs. 7,00,000, a deduction equal to that excess will be allowed from the income tax payable.
This means the thresholds and calculation methods differ between the two regimes.
If I want to opt for the old tax regime instead of the default new tax regime while filing my ITR for FY 2023-24 (AY 2024-25), should I submit Form 10-IEA before filing my income tax return?
Form 10-IEA is a declaration for those wishing to opt out of the new tax regime.
Individuals with business or professional income must submit Form 10-IEA to pay taxes under the old regime.
However, taxpayers without business or professional income can simply tick the “Opting out of new regime” option in the ITR form without needing to file Form 10-IEA.
If you are filing ITR-3 or ITR-4 with business income, you must submit Form 10-IEA. Individuals using ITR-1 or ITR-2 do not need to file a 10-IEA form.
If I am filing my ITR under the new tax regime for FY 2024-25, can I switch between the old and new tax regimes in the following years?
Individuals with business or professional income cannot switch between the old and new tax regimes every year.
Once they opt out of the new tax regime, they have only one opportunity to switch back to it. After switching back to the new regime, they will not be able to revert to the old regime in the future.
In contrast, individuals with non-business income can switch between the two regimes each year.
It’s important to note that if you choose the old tax regime, this decision must be made before the due date for filing the return under section 139(1) of the Income Tax Act.
I have business income and mistakenly filed Form 10-IEA. I want to file my return under the new tax regime, but there’s no option to withdraw Form 10-IEA. Can I still file my return under the new tax regime?
Once Form 10-IEA is filed, it cannot be revoked or withdrawn within the same assessment year.
If you want to switch to the new tax regime, you can file for withdrawal using Form 10-IEA in the next assessment year.
It’s important to note that the choice of the old tax regime must be made before the due date for filing the return under section 139(1) of the IT Act.
