Can We Change Tax Regime While Filing ITR?

Have you ever wondered if it’s possible to change the tax regime while filing an ITR? Understanding the complexities of tax regulations can be overwhelming, with changes introduced in Budget 2023. Let’s explore how to change the tax regime while filing ITR so you know how to go about it.

Old Tax Regime

In the old tax structure, taxpayers qualified for all the exemptions and deductions available under Section 80D and more for their expenses, investments, premiums paid towards insurance policies, housing loans and the like. This structure favoured people who qualified for deductions through their heavy investments and high spending behaviour.

New Tax Regime

The new tax structure, introduced during the 2020 Budget, was again revised in the budget presented in 2023. As per this new structure, taxpayers are given concessions in their tax percentages. Earlier, the basic exemption limit was fixed at Rs.2,50,000. However, the new tax regime increased this limit to Rs.3,00,000.

One important change in the new tax regime, individuals have limited options for claiming deductions. However, some specific deductions can be claimed under Section 80CCD(2) and Section 80JJA. The former is for employed individuals, and the latter is for business income.

Change Tax Regime While Filing ITR

So, can we change the tax regime while filing ITR? Yes, you have the option to transition between the Old Tax Regime and the New Tax Regime as per Budget 2023 when filing your ITR.

If you are a salaried individual, the following is applicable to you:

• You can switch your tax regime throughout the year when filing your ITR; this can be done even if you have chosen the new regime.
• You can choose your preferred regime (i.e., old or new) within the ITR form.
• You do not need to fill out any additional forms or follow different procedures.

Before you switch, remember that the new tax regime will now become your default tax regime for FY 2023-24.

If you are an individual with Business or Profession Income, the following is applicable to you:

• There is limited flexibility to change/switch tax regimes.
• When you opt for a new tax regime, you can switch back to the old one only once in your life.
• You must fill and submit Form 10-IE along with your ITR. Failing to submit Form 10-IE within the original due date for filing ITR makes you ineligible to switch back to the old tax regime for that financial year.

Things to remember when switching tax regime

When you are planning to switch to a different tax regime, here are a few points you should remember to avoid any ambiguity regarding exceptions and exemptions available:

• Be aware of your tax regime

You should have a thorough knowledge of the tax rates, basic exemption limits, deductions allowed and other features of the old and new tax regimes. This will help you make a careful consideration, and choose the regime that suits you the best and helps you save taxes.

• Know your tax liability

Use an online income tax calculator to easily calculate the tax you should pay for your income under the old and new tax regimes. Understand the deductions you qualify for under both regimes to make a qualified decision.

• Impact of the regime on your investments and savings

If you already have some savings and investments, you should consider the implications of the new tax regime on your finances. Some investments for which deductions were allowed in the previous tax regime may not be valid anymore. Check the impact thoroughly and switch to the new tax regime only if it benefits you.

• Proper documentation

Whether you follow the old or new tax regime, ensure you have proper documentation to support your income, deductions, expenses, investments, exemptions and more. This makes it easy for you when filing your income tax returns. Make sure to have valid offline/online proofs for every record.

• Plan to save taxes

Apart from understanding the implications of the new tax regime in the short run, consider it from a long-term perspective as well. Is the new tax structure aligned with your future financial planning and tax-saving goals? If yes, you can consider switching to the new structure.

Conclusion

Changing tax regimes while filing your ITR is definitely possible. Consider tax rebates under both regimes, like Section 80D for premiums in health insurance policy, before deciding to switch. If you find navigating the complexities of tax regimes intriguing, seek guidance from a tax advisor or financial expert.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the topic featured in the article. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.

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