Switching Between Old And New Tax Regimes: How Often Can You Change?

From the financial year ending March 2024, the new tax regime has been set as the default option for taxpayers in India. Unless a person opts for the old regime, their taxes will be deducted based on the new structure. The ability to switch between these two regimes depends on the type of income earned.

Understanding the tax regimes

New tax regime 

The new regime offers simplified tax slabs but provides limited deductions and exemptions.

The tax slabs applicable from April 1, 2025, are:

• Up to Rs 4 lakh: Nil

• Rs 4 lakh to Rs 8 lakh: 5%

• Rs 8 lakh to Rs 12 lakh: 10%

• Rs 12 lakh to Rs 16 lakh: 15%

• Rs 16 lakh to Rs 20 lakh: 20%

• Rs 20 lakh to Rs 24 lakh: 25%

• Above Rs 24 lakh: 30%

Deductions available under the new tax regime:

• Section 24(b): Interest on a home loan for rental properties.

• Section 80CCD(2): Employer's contribution to NPS (capped at 14% of salary)

Old Tax Regime

In the last budget, existing income tax slabs under the old tax regime have been retained, with no changes announced. As such, those opting for the old tax regime in FY 2024-25 (April 1, 2024, to March 31, 2025) will calculate their income tax using the same rates as applicable in FY 2023-24 (April 1, 2023, to March 31, 2024).

• Tax slabs under the old tax regime

• For those below 60 years

• Up to Rs 2.50 lakh: No tax

• From Rs 2.5 lakh to Rs 5 lakh: 5%

• Rs 5 lakh to Rs 10 lakh: 20%

• Above Rs 10 lakh: 30%

• For senior citizens (60 to 80 years)

• Up to Rs 3 lakh: No tax

• Rs 3 lakh to Rs 5 lakh: 5%

• Rs 5 lakh to Rs 10 lakh: 20%

• Above Rs 10 lakh: 30%

• For super senior citizens (above 80 years)

• Up to Rs 5 lakh: No tax

• Rs 5 lakh to Rs 10 lakh: 20%

• Above Rs 10 lakh: 30%

Deductions available under old tax regime:

• Section 80C: Investments in PPF, ELSS, LIC (up to Rs 1.5 lakh).

• Section 80D: Health insurance premium deductions.

• Section 24(b): Home loan interest deductions up to Rs 2 lakh.

• Exemptions like House Rent Allowance (HRA) and Leave Travel Allowance (LTA).

Who Can Switch And How Often?

Salaried Professionals

Salaried professionals enjoy the flexibility to switch between the new and old tax regimes every financial year. This allows them to reassess their tax liability annually and choose the regime that provides the most benefits based on their income and eligible deductions.

To make the switch, salaried individuals must indicate their choice before the due date for filing their Income Tax Return (ITR). This is important, as failing to select the preferred tax regime on time means the default new tax regime will apply automatically.

Business And Professional Income Earners

Those earning from business or profession must adhere to stricter rules when it comes to switching tax regimes. Unlike salaried people, they do not have the liberty to switch back and forth every year.

To opt out of the new tax regime and choose the old tax regime, these taxpayers must submit Form 10-IEA before the ITR filing deadline specified under Section 139(1) of the Income Tax Act. This is a mandatory step for those looking to shift away from the new regime.

Once an individual with business or professional income opts out of the new tax regime and moves to the old regime, they have only one opportunity to switch back to the new regime in their lifetime. After they return to the new regime, they cannot choose the old tax regime again.