The Indian government introduced the New Tax Regime (NTR) in 2020, offering taxpayers an alternative to the existing Old Tax Regime (OTR). While the NTR simplifies the tax structure and reduces tax rates, it also eliminates certain deductions and exemptions available under the OTR. This guide will provide a comprehensive overview of the steps involved in opting out of the NTR and reverting to the OTR.
Eligibility for Opting Out
Individuals with the following income sources can opt out of the NTR:
- Salaried individuals
- Individuals with business or professional income (except those who have opted for the presumptive taxation scheme)
Methods for Opting Out
1. Salaried Individuals
Salaried individuals can opt out of the NTR by selecting the “No” option in the ITR Form 1 when filing their income tax returns. This option is available under the section titled “Do you wish to exercise the option u/s 115BAC(6) of opting out of new tax regime? (default is No)”.
2. Individuals with Business or Professional Income
Individuals with business or professional income must file Form 10-IEA to opt out of the NTR. This form must be submitted on or before the due date for filing the income tax return.
Timeline for Opting Out
Individuals can opt out of the NTR only at the time of filing their income tax returns. The deadline for filing income tax returns is July 31st for individuals and September 30th for businesses.
Consequences of Opting Out
Once an individual opts out of the NTR, they cannot switch back to it in the future. Additionally, they will not be eligible for any deductions or exemptions that are not available under the OTR.
Comparison of Old and New Tax Regimes
| Feature | Old Tax Regime | New Tax Regime |
|---|---|---|
| Tax Slabs | 0-2.5 lakhs (0%), 2.5-5 lakhs (5%), 5-10 lakhs (20%), 10 lakhs and above (30%) | 0-3 lakhs (0%), 3-6 lakhs (5%), 6-9 lakhs (10%), 9-12 lakhs (15%), 12-15 lakhs (20%), 15 lakhs and above (30%) |
| Deductions and Exemptions | Various deductions and exemptions available, including Section 80C, 80D, and HRA | No deductions or exemptions available, except for standard deduction and employer’s contribution to NPS |
| Tax Rates | Lower tax rates compared to the NTR | Higher tax rates compared to the OTR, but simplified tax structure |
Opting out of the NTR is a decision that should be carefully considered based on an individual’s financial situation and tax liability. By understanding the eligibility criteria, methods, timeline, and consequences of opting out, taxpayers can make an informed choice that optimizes their tax savings.
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FAQ
Can you switch back from new regime to old regime?
Can new tax regime be opted after due date?
What is the deduction for new tax regime?
How to opt out of new tax regime?
Option to opt out – Taxpayers can opt out of the new tax regime until filing their return for the AY 2024-25. Eligible individuals without any business income can choose their preferred regime for each financial year, alternating between the new and old regimes as per their preference.
How do I select the new tax regime?
In the past, individuals were required to fill out Form 10-IE to select the new tax regime. This form allowed them to indicate their preference for the new tax system. However, starting from the financial year 2023-24, the new tax regime will automatically be set as the default option for taxpayers.
How do I re-enter the new tax regime?
If individuals with business or professional income wish to re-enter the new tax regime after opting out, they must submit Form 10-IEA. This form serves as a means to express their intention to return to the new tax regime. On the other hand, individuals without business or professional income can re-enter the new tax regime.
How to opt for new tax regime in FY 2022-23?
While filing for FY 2022-23, if the assessee wants to opt for the new tax regime instead of the default old tax regime, he should file Form 10IE before filing his income tax return (ITR). Form 10IE is a declaration made by the return filers for choosing the ‘New Tax Regime’.