(Abhigya Singh, Senior Editor at IELR)
The Finance Act, 2023 introduced significant amendments to section 115BAC, effective from the Assessment Year (AY) 2024-25, establishing the new tax regime as the default option for taxpayers. This change applies to various categories of assessees, including Individuals, Hindu Undivided Families (HUF), Associations of Persons (AOP) (excluding cooperative societies), Bodies of Individuals (BOI), and Artificial Juridical Persons. Despite this shift, eligible taxpayers retain the flexibility to opt-out of the new tax regime and instead choose to be assessed under the old tax regime. The old tax regime refers to the system of income tax calculation and slab rates that were in place prior to the introduction of the new tax framework.
For taxpayers classified under "non-business cases," the option to select their preferred tax regime can be exercised annually. This choice is made directly within the Income Tax Return (ITR) filed on or before the due date as specified under section 139(1) of the Income Tax Act.
In contrast, taxpayers who derive income from "business and profession" and wish to opt out of the new tax regime must complete and submit form 10-IEA. This submission must also occur on or before the due date stipulated under section 139(1) for filing the income tax return. Additionally, should these taxpayers later decide to revert to the old tax regime, such a decision must similarly be communicated through the submission of form 10-IEA. While the new tax regime is set as the default, taxpayers continue to have the option to elect the old regime if it better suits their circumstances.
A Brief Comparison between the Old and New Tax Regimes
The primary distinction between the old and new tax regimes lies in their respective tax slabs and rates, as well as the availability of various deductions and exemptions. Under the old tax regime, a range of deductions and exemptions is accessible. For example, salaried individuals can claim a standard deduction, and House Rent Allowance (HRA) may be partially or fully exempt depending on the actual rent paid. Additionally, interest on home loans can be deducted up to a limit of Rs. 2 lakh.
Conversely, the new tax regime presents a simplified structure with lower tax rates but offers limited scope for deductions and exemptions. Furthermore, taxpayers, particularly those without business income, are afforded the flexibility to choose between the new and old tax regimes on an annual basis, allowing them to select the framework that aligns best with their financial goals and obligations.
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