A reader asks, “Sir, thank you for the old tax regime vs the new tax regime calculator. It is really easy and useful. I realised that the new regime is better from the next financial year unless someone has a huge HRA or home loan interest. However, if I wish to buy a house in future, can I switch back to the old tax regime?
We don’t know how long the old tax regime will continue to exist! As per current rules. If you choose the new tax regime, you can switch back to the old regime anytime if you are salaried with no business income. If you have a business income, you can switch back to the old regime once but then cannot move to the new regime again. These rules may change if the old regime is sunset. This means salaried people or HUF with no business income (those filing ITR1 and 2) can choose between the old and new regime (section 115BAC) every year.
Others (with business income) can choose to be in the old regime for as long as they want, but once they shift to the new tax slab, they will be allowed to withdraw only once. If they switch back to the old regime from the new one, they cannot return to the new one unless their business income is zero.
Another reader asks,
Q: If a salaried person with a small side income from business ( and honest enough to show it) is at the fag end of their working life and is expected to retire soon with a good amount of gratuity + leave encashment, I guess they should wait and watch before moving to New Tax Regime. The tax outgo may be quite high if the lump sum is added to the salary, which is exempted otherwise under section 10(10) and because of the income from a business, he may not be able to switch freely between two regimes. Is this understanding correct?
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A: Section 10(10D) also applies to the new tax regime. The maturity amount received from policies purchased on or before March 31st 2023, is fully tax-exempt in the new tax regime regardless of the premium amount.
For life insurance policies issued on or after April 1, 2023, the tax exemption on maturity benefits under Section 10(10D) will only be applicable if the aggregate premium paid by an individual is less than or equal to Rs 5 lakh (of course this may not be relevant to the reader).
Therefore, I think you can shift to the new tax regime unless other tax deductions like HRA are significant. Use our calculator to find out: Should I switch to the New Tax Regime from 1st April 2023?
Q: In the above-mentioned case, if the person does not have income from business/profession, will he be able to choose New Regime for FY 2023-24 and then on the year of receipt of the retirement benefits (say in FY 2024-2025 or beyond)? The person can move back to the old regime to take advantage of section 10(10). Is this understanding correct based on the present conditions?
A: As mentioned above, your understanding is wrong. You can shift to the new regime and stay put.