The final deadline for submitting documentation of yearly investments and expenses for this fiscal year is March 31. With the submission, taxpayers must answer questions concerning their tax regime of choice. Currently, there are two tax regimes: Old Tax Regime and New Tax Regime.
The Old Tax Regime is an age-old tax regime that has existed for decades. Taxpayers can claim a variety of deductions and exemptions under different parts of the Income Tax Act. This plan provides around 70 deductions and exemptions to assist reduce your taxable income. It also allows for a deduction of Rs 1.5 lakh under Section 80C.
The New Tax Regime was implemented in the Union Budget 2020, with lower tax rates. Taxpayers who choose for the new tax regime are unable to claim important deductions such as HRA, LTA, Section 80C, and others.
In its Budget 2023, the Union government made this the default choice. If a taxpayer does not specifically choose between the old and new tax regimes, their taxes will be calculated using the new system.
However, taxpayers can switch between the two systems. The number of switches authorized is determined by your profession or particular criteria outlined in tax legislation.
Every year, salaried individuals and business professionals can choose between the old and new tax systems. Individuals who do not fit into these categories are only permitted to switch between the old and new regimes once in their lives.
How to transition between two regimes?
> A person receiving income from a company or profession can only switch tax regimes once. As a result, if a taxpayer or self-employed individual chooses the new tax regime, they can only return to the previous regime once in their lifetime.
> These taxpayers must file Form 10-IE together with their Income Tax Return (ITR). If they fail to file Form 10-IE before the initial due date for filing your ITR, they will be unable to revert to the previous regime for that year.
> Form 10IE must be submitted before submitting your income tax return. Once Form 10IE is filed, a 15-digit acknowledgment number will be assigned. To file an ITR under the new tax regime, taxpayers must furnish this 15-digit acknowledgment number.
> A salaried individual can choose between the new and old tax regimes every fiscal year. Even if the taxpayer had chosen the new TDS regime during the year, they can readily modify their preferred tax system while completing their ITR.
> The Central Board of Direct Taxes (CBDT) has just launched two new income tax return forms for the Assessment Year 2024-25: ITR-1 (SAHAJ) and ITR-4 (SUGAM). ITR Form 1 now contains the option to select a tax regime.
> Under the recently released tax return forms for FY24, persons who wish to "opt out" of the new tax system must complete a separate form in addition to selecting 'Old system'. Failure to do so will result in the tax computation being based on the new regime.
