Filing ITR-1 or ITR-2? Forget Form 10-IEA for Annual Tax Regime Switching

The income tax framework in India permits taxpayers to choose between the conventional (old) tax regime, which includes various deductions and exemptions, or the more modern, streamlined (new) tax regime under Section 115BAC, which boasts lower slab rates but fewer deductions. Starting from Assessment Year (AY) 2024-25 (pertaining to Financial Year 2023-24), the new tax regime is the default choice for the majority of individual taxpayers.

This change raised a common query: "Am I required to submit Form 10-IEA if I intend to revert to the old regime, or if I opted for the old regime last year and wish to select the new one this year?"

The brief response, for most salaried individuals and pensioners using ITR-1 (Sahaj) or ITR-2, is NO; typically, you do not need to submit Form 10-IEA to switch year-to-year.

Let’s clarify the reasons.

• Old Tax Regime: Permits various deductions (such as Section 80C, 80D, HRA exemption, LTA, the standard deduction on salary, and interest on home loans under Section 24(b), etc.) but features higher tax slab rates.
• New Tax Regime (Sec 115BAC): Provides lower slab rates but eliminates most common deductions and exemptions. From AY 2024-25, it introduces a standard deduction of ₹50,000 for salaried individuals and pensioners and increases the basic exemption limits. This is the default regime.

What does Form 10-IEA entail?

Form 10-IEA is an online form found on the income tax portal. Its main function pertains to choosing the tax regime under Section 115BAC. Importantly, the necessity of this form varies depending on whether the taxpayer earns income from business or profession.

This is where misunderstandings commonly occur, leading to different rules:

Individuals WITHOUT Business or Professional Income:

• This category generally comprises salaried employees, retirees, individuals receiving interest income, capital gains (not derived from business), or rental income from residential property.
• These taxpayers typically submit ITR-1 or ITR-2.
• For these individuals, the option to choose between the old and new tax regime can be exercised annually directly in the Income Tax Return (ITR) form.
• As the new regime is the default starting from AY 2024-25, if you prefer the old regime, you can select that choice while completing your ITR-1 or ITR-2 before the deadline (which is usually July 31st).
• If you selected the old regime in one year (for example, AY 2024-25) and wish to switch back to the new regime in the following year (AY 2025-26), you simply do not select the option to opt-out while filing your ITR for AY 2025-26. The default new regime will then apply.
• Summary for ITR-1/ITR-2 Filers (No Business Income): You have the option to choose your preferred regime each year during the filing of your return. There is no need for a separate Form 10-IEA to opt-out of the default new regime or to revert to it in a future year.

• This category includes freelancers, consultants, healthcare professionals, lawyers, shopkeepers, etc., who generate professional or business income.
• These taxpayers generally file ITR-3 or ITR-4 (Sugam).
• For these individuals, the regulations are more stringent. If they wish to opt-out of the default new tax regime and select the old regime, they are REQUIRED to submit Form 10-IEA before the ITR filing deadline (as stipulated in Section 139(1)).
• Once someone with business income chooses to opt-out of the new regime (by submitting Form 10-IEA), they may switch back to the new regime only once throughout their lifetime. If they do so, they cannot revert to the old regime unless their business income comes to an end.
• Summary for ITR-3/ITR-4 Filers (With Business Income): Filing Form 10-IEA is compulsory to opt-out of the default new regime. Options for switching are more restricted in comparison to those without business income.

Imagine you are a salaried person filing ITR-1:

• For AY 2024-25 (FY 2023-24): The new tax regime was the standard choice. You computed your taxes and realized the old framework was more favorable. While submitting your ITR-1 by July 31, 2024, you chose to "Opt out of the new tax regime." There was no need to file Form 10-IEA.
• For AY 2025-26 (FY 2024-25): You review your tax calculations again. This time, the new regime proves to be more advantageous (possibly due to fewer deductions or changes in income). When completing your ITR-1 by July 31, 2025, you simply do not opt for the "Opt out" option. The new regime under Section 115BAC will be applied by default. Again, you do not need to file Form 10-IEA.

• Flexibility: You have the option to choose between the old and new tax regimes every fiscal year.
• No Form 10-IEA Required: You make your choice directly within your ITR form (ITR-1 or ITR-2). There is no need to submit Form 10-IEA for this yearly selection or transition.
• Default Regime: Keep in mind that the new tax regime (Section 115BAC) is the standard starting from AY 2024-25. You only need to make an active decision if you prefer the old regime.
• Deadline: This selection must be made by the deadline for filing your income tax return under section 139(1).

The necessity to submit Form 10-IEA mainly affects those with business or professional income wishing to opt out of the default new tax regime. For most taxpayers—salaried individuals, retirees, and those earning from house property, capital gains, or other sources (without business income) filing ITR-1 or ITR-2—the procedure is significantly more straightforward. You can easily select the most beneficial regime each year by making the decision within your ITR form, without the need for extra compliance like Form 10-IEA.

Always assess your tax liability under both systems prior to making your choice each year to ensure you select the best option for your financial situation.

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