If I choose the new tax regime can I switch back to the old regime?

A taxpayer can opt for the new tax regime from April 2020. Can such a tax-payer switch back to the old regime? What are the conditions for switching back?

Published: February 3, 2020 at 8:46 am

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The new tax regime introduced in budget 2020 comes with many questions attached. If a taxpayer chooses the new regime (new tax slabs), can they switch back to the old regime (old tax slabs)? What are the conditions associated with such a switch?

Have you checked if you should switch to the new slabs? Use this New Tax Regime vs Old Tax Regime Comparison Table to find out. You can also consider participating in this twitter poll after you have checked.

Explore our budget coverage: (1) New tax regime (section 115BAC): you cannot avail these deductions! (2) Individuals to pay Tax on Dividends from Shares and Mutual Funds! (3) List of tax deductions in New tax regime (section 115BAC)  (4) Is the interest earned from PPF, EPF, SSY Taxable in new tax regime? (5) Will TDS apply to mutual fund capital gains from April 2020? (6) Do Middle East NRIs need to pay tax in India from April 2020?

Can the taxpayer decide which slab to follow each assessment year?

If I choose the new tax regime can I switch back to the old regime? Yes, you can each year if you are salaried with no business income. If you have a business income you can switch back to old once but then cannot move to new again in future.

According to the budget memorandum, “The option shall be exercised for every previous year where the individual or the HUF has no business income, and in other cases, the option once exercised for a previous year shall be valid for that previous year and all subsequent years”

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.  Even if a salaried taxpayer chooses the new regime, it will not be automatically applied in the next assessment year. A choice will have to be exercised.

Others (with business income) can choose to be in the old regime for as long as they want or can but once they shift to the new tax slab, they will be given an option to withdraw only once. If they switch back to the old regime from the new regime, they cannot come back to the new regime unless their business income is zero.

As an example consider a taxpayer with business income, Ajay. Ajay chooses the new regime for AY 2021-22.  The new regime will be default setting for him in AY 2022-2023. If Ajay decides to opt back to the old regime for AY 2022-2023, he will be allowed. However, he can never move back to the new regime unless he has no business income.

Those filing ITR 1 and ITR 2 will be given a choice between the old and new each AY.

Conditions under which the new tax slab (section 115BAC) is applicable

The total income should be computed without

  1. allowances or deductions listed here are not claimed: New tax regime (section 115BAC): you cannot avail these deductions!
  2. any set-off of any loss carried forward or depreciation from any earlier assessment year under the head house property with any other head of income
  3. any depreciation under section 32 of the income tax act  – except clause (iia) of sub-section (1).
  4. any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force

So what have you decided? Old or new tax slabs? Use this New Tax Regime vs Old Tax Regime Comparison Table to find out. You can also consider participating in this twitter poll after you have checked.

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