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Business Standard
30-05-2025
- Business
- Business Standard
Can you switch tax regimes? rules for salaried and business taxpayers
As Indians file their taxes, many of them are likely wondering if they should adopt the old or new regime. The first offers exemptions and deductions and the other lower tax rates but no deductions: either of them will shape your take-home income. Can you switch between the two regimes? If yes, how often? Experts say that while salaried individuals have flexibility, those with business income face tighter controls. Here's a breakdown of what the rules allow, and the pitfalls to avoid. Salaried individuals can switch regimes every year Salaried taxpayers can toggle between the old and new regimes every financial year while filing their Income Tax returns (ITR). This means you don't have to commit to one regime forever. 'A salaried individual has the flexibility to switch between the old and new tax regimes every financial year,' said Amit Bansal, partner at Singhania & Co., a legal consultancy firm. 'They can reassess their financial situation and choose a regime that offers better tax benefits.' Even if you declared a particular regime to your employer for the purpose of tax deducted at source (TDS), the choice isn't binding. 'The intimation to the employer is only for TDS purposes,' said S R Patnaik, partner (head - taxation) at Cyril Amarchand Mangaldas. 'The final regime selection must be made by the individual while filing their ITR.' Restrictions on professionals, business income If you have income from business or profession, you can switch from the new regime to the old regime only once. After that, unless your business income ceases, you cannot go back to the new regime. Income earned by professionals such as Doctors, Lawyers, Accountants, etc. is termed professional income. 'Once individuals with business or professional income opt for the new tax regime, they can return to the old regime only once,' said Bansal. 'This is to ensure consistency in tax planning and avoid regime-hopping.' To exercise this switch, the taxpayer must file Form 10-IEA before the due date of filing their ITR. Missing this deadline means being locked with the default regime. Can you change tax regime while filing ITR? Experts say salaried individuals can change regimes at the time of filing their return, even if they picked another one for employer TDS purposes. But this has practical challenges. 'If a salaried person opts for the old regime at the time of filing but hasn't submitted deduction proofs to the employer, the mismatch can trigger a notice,' said Aarti Raote, partner at Deloitte India, a professional services firm. 'Form 16 would reflect a different regime, leading to delays in assessment.' Common mistakes to watch out for Experts flagged a few frequent errors: Not comparing both regimes carefully using reliable tax calculators. Assuming the employer's regime choice is final, it's not. Failing to maintain deduction proofs when switching back to the old regime. Missing deadlines for submitting forms like 10-IEA (for business professionals). 'The most important thing is that taxpayers must choose their regime before the due date for filing the ITR,' said Patnaik. 'One frequent mistake is not estimating income and deductions accurately before choosing a regime,' said Raote Bottom line According to rules, salaried individuals can switch regimes annually, while business professionals can do so only once, and with conditions. Making the right choice requires a proper evaluation of income, deductions, and future plans like home or education loans. The tax regime you choose isn't just a checkbox, it's a financial strategy. Choose wisely, file on time, and when in doubt, consult a professional.
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Business Standard
21-05-2025
- Business
- Business Standard
Do NRIs have to file tax returns in India: What's the rule and process
It is the time to file Income Tax returns (ITR) and many non-resident Indians (NRIs) are likely asking: Do they need to do so in India? While the process is simple, experts say NRIs need to carefully give details about their earnings. Do NRIs need to pay income tax in India? 'An NRI is liable to pay tax in India only on the income earned or received in India. This includes rent from Indian property, interest on Non-Resident Ordinary (NRO) accounts, which is savings or current account in Indian Rupees for NRIs in India, or capital gains from Indian assets,' said S R Patnaik, partner and head of taxation at law firm Cyril Amarchand Mangaldas. Who is considered as NRI? According to the Income-Tax Department, an individual's residential status is the first factor in determining tax liability. If you've spent less than 182 days in India in a financial year, you're typically considered a non-resident — and taxed accordingly. How is filing taxes different for NRIs? 'Resident individuals are taxed on global income and can use ITR-1 (Sahaj) for simple income sources. NRIs, however, must use ITR-2 if they don't have business income, or ITR-3 if they do,' Patnaik explained. Common mistakes by NRIs in ITR filing 'NRIs often misclassify their residential status or forget to update banks and mutual funds about the change,' said Amit Bansal, partner at Singhania & Co, a global legal consultancy firm. Also Read 'They also tend to use the wrong ITR form or miss reporting Indian income such as interest earned in NRO accounts.' Bansal advised NRIs to maintain travel records, inform Income Tax Department promptly, and consult a professional to ensure correct classification and filing. Foreign income and reporting: What's mandatory? 'If you're an NRI for tax purposes, your foreign income is not taxable in India,' Patnaik said. 'Also, unlike residents, NRIs are not mandated to disclose foreign bank accounts or assets under Schedule FA. However, they may do so voluntarily.' According to the Central Board of Direct Taxes, mandatory foreign asset disclosure applies only to individuals classified as residents under the Income Tax Act, especially those falling under the Resident but Not Ordinarily Resident (RNOR) category. ALSO READ | No major policy shifts for NRI tax filing for AY 2025–26 The CBDT has released the ITR forms applicable for Assessment Year 2025-26. Form ITR-2 has been updated for clarity and no NRI-specific policy changes or exemptions have been introduced, according to the two experts.
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Business Standard
06-05-2025
- Business
- Business Standard
ITR-2 updates: Who benefits and who needs to be careful
The Income Tax Department announced the revised ITR 2 form for AY 2025 26 this week, reflecting a push for more detailed disclosures and tighter compliance. Here, through insights from tax experts, we explain what ordinary taxpayers need to know and how to navigate the changes. Date based capital gains reporting 'The new form separates capital gains before and after July 23, 2024,' explains Dr. Simarjeet Singh, assistant professor of Finance at Great Lakes Institute of added "post date sales can opt for a flat 12.5 per cent tax rate without indexation, versus the earlier 20 per cent with indexation." • Two sets of calculations are now required. • Precise record keeping of sale dates is crucial to avoid filing errors. Claiming share buyback losses 'Retail investors finally have clarity on buyback losses,' says Amit Bansal, partner at Singhania & Co. He added "from October 1, 2024, capital losses on share buybacks can be claimed only if corresponding dividend income is reported under Schedule OS." • Cross reference losses and dividends carefully. • Omission can lead to disallowed claims and notices. Higher asset disclosure threshold The reporting bar under Schedule AL has jumped from ~50 lakh to ~1 crore. 'This is a relief for upper middle income taxpayers,' notes Dr. Kirti Sharma, associate professor at Great Lakes. "Filers earning up to ~1 crore need not list every asset and liability in detail, freeing them from cumbersome schedules." Detailed deductions and TDS codes · TDS section reporting: Taxpayers must now state the exact section code (e.g., 192 for salary, 194I for rent) rather than just the deductor name and amount. · Chapter VI 'A breakdown: Deductions under sections like 80C must specify sub categories (PF, LIC, tuition fees), while 80G donations require the ARN. 'These moves signal a shift to verification readiness,' warns SR Patnaik, head of taxation at Cyril Amarchand Mangaldas. 'The department's data 'matching will flag inconsistencies.' Expanded foreign and digital asset reporting · Schedule FA/FSI: Overseas investments now need more granular details, including Legal Entity Identifiers for high value transactions. · Virtual digital assets: Trades remain taxed at 30 per cent under section 115BBH, with no set??'off for losses—making exact reporting non 'negotiable. Tips for smooth self filing Here are detailed, step-by-step tips by Dr. Kirti Sharma. 1. Start Well Ahead: Spread the process over days to reduce fatigue??'induced mistakes. 2. Gather your documents: Form 16/16A, AIS/Form 26AS, bank statements, capital gains statements and donation ARNs. 3. Use pre??'fill utilities: The income??'tax portal's JSON uploader now accommodates most new disclosures. 4. Compare tax regimes: Run numbers under both old and new regimes before choosing to opt out of Section 115BAC. SR Patnaik supported the broader idea of being well-prepared and vigilant during self-filing. In sum, the revamped ITR '2 strikes a balance. It lightens the load for many salaried and retired taxpayers by raising thresholds, yet demands greater diligence from those with capital gains, foreign holdings or digital assets. 'For straightforward incomes, it remains navigable,' Singh concludes, 'but complexity now truly warrants professional advice for anyone with multiple income streams.'
