Explained: Is there a deadline to choose between old and new tax regime?

In India, there technically isn't a strict deadline to choose a specific tax regime for salaried individuals for the FY 2023-2024 (AY 2024-2025). However, the option to choose is tied to filing your Income Tax Return (ITR).
 

You can select the tax regime while filing your ITR. The standard due date for ITR filing is July 31st (extended to October 31st if your accounts are audited). Therefore, filing your ITR by the deadline essentially acts as the deadline to choose the tax regime for salaried individuals.

New Regime is Default: If you don't actively choose the old tax regime, your employer will automatically deduct tax based on the new regime.

Salary Impact: The tax you pay can affect your take-home salary. Choosing the right regime can potentially save you money.  Your employer will likely initiate the process around the beginning of the new financial year (April 1. They'll ask you to declare your preferred tax regime. For TDS (tax deducted at source) on salary, the employee is required to choose between the old and new tax regimes. Remember, the new tax regime is the default tax regime option. If you do not inform your employer that you want to opt for the old tax regime, your employer will deduct tax from salary income based on the new tax regime. 

"It is pertinent to note that the default regime shall be the new tax regime. Therefore, if an assessee wants to file return under old tax regime, claiming all the deductions, exemptions, and losses therein, the same has to filed within the due date. Post the due date, you have to mandatorily file under the new regime by giving up on most of the deductions, exemptions, and losses thereof. These changes aim to simplify the tax process and encourage more taxpayers to transition to the new regime," said Ritika Nayyar, Partner, Singhania & Co.

For individuals with business/profession income:

•A separate form (Form 10-IEA) is needed to opt for the old tax regime.

•This form must be submitted before the ITR filing deadline (typically July 31st).

So, while there isn't a separate deadline for just choosing the regime, there is a deadline associated with filing the form (if applicable) and your ITR.

" From the new Financial Year, the new income tax regime has been set as the default option. Therefore, if you wish to continue with the old regime, you’ll be required to opt for the same in ITR or file Form 10 – IEA, if you have Business Income, at the time of return filing. Taxpayers not having Business Income will have the option to switch between regimes on an annual basis," said Amay Jain, Senior Associate, Victoriam Legalis - Advocates & Solicitors.

Nayyar explains the key differences between the old and new regime: 

The key differences between India’s new and old tax regimes are primarily in the tax slabs, rates, and the availability of exemptions and deductions. Here’s a summary of the main distinctions:

Tax Slabs and Rates:

•The new tax regime offers revised tax slabs and lower rates but does not allow most exemptions and deductions.

•The old tax regime follows a progressive tax structure with various exemptions and deductions, where higher income levels attract higher tax rates.

Exemptions and Deductions:

•Under the new regime, taxpayers cannot claim several exemptions and deductions, such as HRA, LTA, Section 80C, Section 80D, etc.

•The old regime allows these exemptions and deductions, which can significantly reduce taxable income for those who make investments and expenditures that qualify for these benefits.

Standard Deduction:

•A standard deduction of Rs 50,000 is now available under both regimes for salaried employees.

Rebate Limit:

•The new regime offers a full tax rebate on an income up to Rs 7 lakh, whereas the old regime’s threshold is Rs 5 lakh.

Surcharge for High Net Worth Individuals:

•The surcharge rate on income over Rs 5 crore has been reduced from 37% to 25% in the new regime.

Surcharge explained: Think of it as an extra tax on top of your regular income tax.

New Tax Regime Benefit:  If you earn a very high income (over Rs 5 crore) and choose the new tax regime, you'll get a discount on this surcharge.

Before: The surcharge rate for incomes exceeding Rs 5 crore was 37%.

Now: The surcharge rate for such incomes under the new tax regime has been reduced to 25%.

This benefit only applies to the new tax regime.

If you choose the old tax regime, you'll still pay the full 37% surcharge on income exceeding Rs 5 crore.

Overall, if you're a high earner considering the new tax regime, this reduced surcharge can mean significant tax savings.

File ITR on time to claim old tax regime benefit: 

The new tax regime is the default option.

To claim the benefits of the old tax regime, you must file your Income Tax Return (ITR) by the due date (typically July 31st).

Why the Deadline?

Filing your ITR on time informs the Income Tax department about your choice of tax regime.
 

Missing the Deadline:

If you file your ITR late (between August 1st and December 31st), you will be automatically switched to the new tax regime.

You won't be able to claim the potential benefits of the old tax regime for that year.