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?

image of a hand (the tax payer) debating between more cash in hand and simplicity (idea) representing the tussle between the new tax regime and the old tax regime

Published: February 3, 2020 at 8:46 am

Last Updated on

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”

Join our 1200+ Facebook Group on Portfolio Management! Want to know how to reduce fear, doubt and uncertainty while investing for financial goals? Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community

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.

Do share if you found this useful
Join our 1200+ Facebook Group on Portfolio Management! Want to know how to reduce fear, doubt and uncertainty while investing for financial goals? Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community

Hate ads but would like to support the site? Subscribe to our ad-free newsletter and get beautifully formatted full articles delivered to your inbox!

About the Author

Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

About freefincal & its content policy

Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News
Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)

Connect with us on social media

Our Publications


You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingThis book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
   

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new

This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when traveling, how traveling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)  

Free Apps for your Android Phone

Comment Policy

Your thoughts are the driving force behind our work. We welcome criticism and differing opinions.Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

3 Comments

  1. Last year Nirmala sitaraman presented budget with 10 year vision, however, most was roll backed within 6 month. Learning lesson, this time she presented budget with NO vision.

Leave a Reply

Your email address will not be published. Required fields are marked *