Salaried individuals can switch between tax regimes whenever they want
In Budget 2020, FM Nirmala Sitharaman introduced a new income tax regimeIndividuals can pay lower taxes, if they are willing to forgo income tax deductions
Individuals who do not have any business income can switch between the old and new tax regimes in the future as many times as they wish to. This will allow salaried individuals in different income tax brackets to evaluate the tax outgo in the two regimes and choose the one where the tax outgo is lower.
However, individuals with business income, will face a restriction on switching between the tax regimes. “Those with business income have the option to switch only once," said Naveen Wadhwa, deputy general manager, Taxmann. Say, a person with business income opts for the new regime in assessment year 2021-22 and goes back to the old regime in the next assessment year. However, once he switches back to the old regime, he will not be allowed to go to the new regime again.
But what happens if a salaried individual has business income in one year, but none in another year? “In such cases, as long the individual doesn’t have business income, he or she can keep switching," said Wadhwa.
For individuals with income from a profession, experts are awaiting clarity. “The budget documents mention only business income. There is no word on income through profession. This should be clarified," said Preeti Khurana, a chartered accountant with tax filing website Cleartax.in.
In Budget 2020, finance minister Nirmala Sitharaman introduced a new income tax regime. In this, taxpayers pay lower taxes, if they are willing to forgo income tax deductions. The new regime has seven tax slabs—there’s no tax for income up to ₹2.5 lakh, 5% for income between ₹2.5 lakh and ₹5 lakh, 10% for income between ₹5 lakh and ₹7.5 lakh, 15% for income between ₹7.5 lakh and ₹10 lakh, 20% for income between ₹10 lakh and ₹12.5 lakh, 25% for income between ₹12.5 lakh and ₹15 lakh, and 30% for income above ₹15 lakh.
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