Employers are required to ask employees to choose between the old and new tax regimes at the start of the financial year, so they can accurately calculate and deduct TDS from your salary. The tax deducted at source calculation depends the employee’s taxable income after considering eligible exemptions and deductions available under the chosen tax regime.
However, if an employee fail to communicate their preference within the time specified by their organisation, the employer will opt for new as it is the default tax system. This means unless you convey your choice to your employer or declare otherwise, your taxes will be calculated using the new regime’s streamlined slabs and lower rates.
Can you switch between old and new tax regime?
Yes. The tax regime selected by your employer is only for the purpose of tax deduction from salary paid by the employer, and the final choice of tax regime rests with the employee at the time of filing (income tax return).
So, even if your employer deducted tax under the new tax regime, you can still opt for the old tax regime at the time of filing and claim eligible deductions and exemptions.
ITR 1 and ITR 2 forms ask the taxpayer “Do you wish to exercise the option u/s 115BAC(6) of opting out of the new tax regime (default is ‘No’)?”. If you click on the ‘No’ option, then you will file your tax return and calculate your tax liability as per the new tax regime, and if you click on ‘Yes’, it means you have switched from the new tax regime to the old tax regime.
However, if you are filing ITR 3 or ITR 4 forms and want to change your tax regime from default regime to old tax regime, then you are required to file form 10-IEA on or before the due date 31st August, 2026.
Who is allowed to switch their tax regimes multiple times?
Both salaried individuals and taxpayers with business or professional income are allowed to change their tax regimes but the number of times it can be done varies between the two categories. Here are the rules that apply to each category:
- Salaried taxpayers: Individuals filing have the flexibility to choose between the old and new tax regimes every year. Even if you informed your employer that you wished to be taxed under the new income tax regime, you can still switch to the old tax regime while filing your ITR this year if it results in a lower tax liability.
- Taxpayers with Business/Professional income: These individuals who file ITR 3, ITR 4, and ITR 5 can switch from new tax regime to old tax regimes only once in a lifetime by filling out Form 10-IEA. If they re-enter to the new tax regime, they cannot switch back to the old tax regime.
Salaried taxpayers must also note that the option to choose between the old and new tax regimes for those who do not have business income is available till the income tax return deadline, meaning if you fail to file ITR on time, then you would not be able to switch your tax regime while filing belated return.
Hence, those filling ITR 1 or ITR 2 must adhere to the July 31, 2026 deadline, unless extended, in order to be able to choose the old tax regime.