Taxman sets rules to switch between old, new regimes

The tax authority also capped at 40% the depreciation rate applicable for assets of individuals with business income, showed the Income-tax (Tenth Amendment) Rules, 2023.

Under the new personal income tax regime, no additional depreciation will be available and although different rates are available for different classes of assets, the maximum rate applicable is capped at 40%, explained Deepesh Chheda, partner at Dhruva Advisors, a tax advisory firm.

I​n the current year’s tax return filing, that is, for income earned in FY23, the old tax regime is the default regime and in case individuals or Hindu Undivided Families with business or professional income want to choose the new regime, they must submit a declaration to the income tax department, explained Archit Gupta, founder and CEO of Clear, a business-to-business fintech software as a service (SaaS) company.

By submitting the declaration, they can inform the income tax department of their choice. However, as per the change in rules, for FY24 income, (next year’s tax filing) the new tax regime is the default regime.

Tax payers with business or professional income who want to opt for the old regime, must submit a declaration in form 10IEA, said Gupta.

Experts also said that since the new tax regime has been made the default tax regime for FY24 income, persons with income from business or profession have to file this form every year to continue in the old personal income tax regime.

Sandeep Sehgal, partner - tax at AKM Global, a tax and consulting firm said this may increase the compliance burden.

“Even for withdrawing from the regime, this form is required to be filed. However, persons having no income from business or profession are required to opt for new or old regime only while filing the return of income, which is a welcome move since they do not have to fulfil the extra compliance of furnishing a separate form," said Sehgal.

Those having income from business or profession can use the provision to opt out of and subsequently opt back into the new regime, but only once.

The option once exercised will apply to all subsequent assessment years unless the person ceases to have any income from business or profession, explained Sneha Pai, senior director, direct tax at Nexdigm, a business and professional services firm.

The new personal income tax regime, introduced in 2020, was modified in this year’s Finance Act to make it more attractive so that more individuals sign up for it. The rule changes give effect to the changes in law. The Union Budget for FY24 had sought to make the new personal income tax scheme sweeter. It offered a tax rebate for income up to ₹7 lakh to individuals, up from ₹5 lakh earlier. Also, the government lowered the number of slabs from six to five and raised the tax exemption from ₹ 2.5 lakh to ₹3 lakh.

Besides the tax slab rejig and higher exemption limit, the government also allowed in the new personal income tax regime a standard deduction of ₹50,000 to salaried individuals. Also, the surcharge on income above ₹ 5 crore was lowered.