The new tax regime (Section 115AC of the Income-tax Act, 1961) provides benefits of a lower tax rate, while offering fewer deductions and exemptions.
Nevertheless, if one has a salary structure that provides adequate benefit in the new tax regime, then here’s how one should go about switching to it.
To start with, the employee has to inform his/her employer at the beginning of the financial year on his/her decision to choose between the old and the new tax regime. The employee can choose to switch between these two regimes every year.
That said, salaried taxpayers, who also have a business or professional income, have to follow an additional process.
According to Archit Gupta, founder and CEO, Clear, a tax filing assistance company, such salaried taxpayers who also have a business income have to file form 10-IE. It is a declaration made by the taxpayers for choosing the new tax regime, as well as for opting out of the new tax regime.
Says Gupta, “It is mandatory to file Form 10-IE if one wants to opt in/opt out of a new tax regime and have Income under the Head ‘Profits and Gains of Business and Profession (PGBP)’. In case the individual does not have a business or professional income, they can just select the new regime while filing the ITR 1 or 2.”
According to Sujit Bangar, founder, Tax Buddy, a tax filing assistance company, "If one is doing any business sort of activity while being salaried employee , his income will be under salary and PGBP. Few of such activities can be trading in shares , trading in futures and options (F&O), trading in commodities or commodities derivatives, freelancing work, income from YouTube or any other platform for content publishing."
Says Bangar, while filing income tax return the taxpayer earning both salary and business income should show these incomes separately as salary income under the head salary and business income under the head profits and gains of business or profession (PGBP). Together with these two will be his total income. Now he cannot file ITR-1 which is for salaried income. He should file ITR-3 or ITR-4 and report income from salary and income from business.
Many deductions are not available in the new tax regime. For instance, the deduction of up to Rs 2 lakh on the interest on the housing loan is not allowed in the new tax regime.
Abhishek Y. Bhavsar, an Ahmedabad-based chartered accountant pointed out that set-off or carry forward of losses or depreciation (from any earlier assessment year), if such loss or depreciation is attributable to any of the deductions as referred under section 115BAC(2)(I) are not available.
Says Bhavsar, certain deductions under chapter VI-A of the Income Tax Act, 1961 are not available in new tax regime with the exception being 80CCD(2) (contribution by employer in employee’s NPS account) and 80JJAA (deduction in respect of employment of new employees).
One cannot file a belated tax return under the new tax regime. If one is filing a tax return after the due date of return, it has to be filed under the old regime. Likewise, if one files a revised belated return, then also one cannot opt for a new tax regime.
Besides, where one has a business income, then form 10-IE has to be filed before the due date of filing ITR for switching to the new tax regime. Also, if such a taxpayer has filed an original return under the new tax regime, then he/she will have to file the revised return also under the new tax regime. That’s because form 10IE cannot be withdrawn during the year.
