The Income Tax (I-T) Department recently unveiled tax return forms that require individuals to provide various details for tax exemption claims. Additionally, individuals are now required to specify the new tax regime as the default option for the assessment year (AY) 2024-25 if their income for the financial year (FY) 2023-24 is taken into account.
However, if an individual wishes to revert to the old tax regime, they must fill out a new form, Form 10-IEA. The new tax regime was initially introduced in the Union Budget 2020. The I-T department has yet to clarify who is eligible to fill out this form—whether it applies to everyone or only to business owners and the self-employed. According to the recently released tax return forms, individuals who wish to opt out of the new tax regime must fill out a separate form. Failure to do so will result in their tax computation being carried out under the new tax regime by default.
In general, the new tax regime is automatically selected by default. However, if a taxpayer decides to opt out, they must file a declaration form. The Budget 2023 made the income tax regime the default option, thereby automatically transitioning several taxpayers who were still adhering to the old tax regime due to deductions to the new tax regime. Additionally, Finance Minister Nirmala Sitharaman introduced changes to the new tax regime, including lower tax rates, increased tax rebates, and the introduction of standard deductions.
Form 10-IEA requires additional details, such as the Permanent Account Number (PAN), tax status (individuals, Hindu Undivided Family (HUF), resident, etc.), and whether any tax benefits for the International Financial Services Centre (IFSC) are being claimed. The form also asks for an individual’s history of switching between the old and new tax regimes. It’s important to note that individuals must submit this form before the tax filing deadline of July 31, 2024. This is crucial because individuals can file a belated return until December 31, 2024.
However, if they miss the July 31 deadline and realize later that the old tax regime was more beneficial, they cannot switch back, as the deadline for submitting Form 10-IEA is July 31, 2024. Switching back from the new income tax regime to the old tax regime may be significant for those who wish to claim tax deductions and exemptions under sections 80C, 80D, and others of the Income-Tax Act (ITA), 1961, which are not allowed under the new tax regime. Additionally, tax rates are lower under the new tax regime for lower-income groups.
For example, individuals earning between Rs 5 lakh and Rs 7.5 lakh are subject to a tax rate of 10.4% under the new tax regime, compared to 20% under the old tax regime, which also allows for numerous deductions and exemptions. Form 10-IEA requests more details from individuals wishing to switch back to the old regime.
Taxpayers must provide Form 10-IEA details for both selections—switching to or from the new tax regime to the old tax regime. However, clarity is still needed on whether Form 10-IEA is mandatory for everyone. Further guidance on the procedure for opting out of the tax regime is awaited from the I-T department. For ITR-4, designed for individuals with business or professional income, taxpayers must submit Form 10-IEA to opt out of the new tax regime.
While providing past details may seem cumbersome, the government deems it necessary to ensure that individuals are accurately claiming deductions and exemptions. Self-employed individuals are allowed to switch back to the old tax regime only once in a lifetime. Failure to fill out this form before the income tax return submission deadline could result in individuals being unable to file belated tax returns under the old tax regime between August 1 and December 31, 2024.
Consequently, they would forfeit their tax exemptions under the old tax regime and automatically be considered to have opted for the new tax regime if they do not fill out Form 10-IEA.
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