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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
ITR-U changes:Fix tax return errors of up to 4 years but with extra charges
To encourage voluntary compliance, the Central Board of Direct Taxes (CBDT) has notified an updated mechanism for filing income tax returns through ITR-U. Taxpayers now have up to 48 months from the end of the relevant assessment year to correct errors or omissions in previously filed returns, double the earlier 24-month period. However, this extended window comes at a cost. ITR-U is applicable to any individual or corporate entity that has omitted or misreported income, missed deductions, or failed to file returns altogether. What's new in the updated ITR-U? According to Ritika Nayyar, partner at Singhania & Co., the amended framework mandates filing the complete applicable ITR form along with ITR-U, as opposed to the earlier simplified standalone format. 'This includes comprehensive financial details beyond just the additional income,' Nayyar said. The additional tax is now levied progressively based on the delay: 25 per cent of tax and interest if filed within 12 months 50 per cent for 12–24 months 60 per cent for 24–36 months 70 per cent for 36–48 months Sandeep Bhalla, partner at Dhruva Advisors, added that taxpayers must also disclose the source of additional income, provide specific reasons for updating the return, and complete a more detailed verification process. Importantly, the form cannot be used to claim refunds or reduce existing tax liabilities. 'The aim is to regularise tax liabilities before detection by authorities. Penalties under ITR-U are significantly lower than those for tax evasion,' Nayyar noted. Bhalla highlighted that this facility offers a final chance to rectify inconsistencies, such as unreported interest, rental income, or capital gains, particularly if discrepancies appear in the Annual Information Statement (AIS) or Taxpayer Information Summary (TIS). Opportunity and limitations While the 48-month window offers flexibility, both experts cautioned against misuse. 'ITR-U cannot be filed if search or survey actions have been initiated, or in cases involving serious proceedings under laws like the PMLA or Benami Act,' Nayyar said. Taxpayers are urged to match all disclosures with Form 26AS, AIS, and TIS. 'Accuracy is critical. Errors can invite scrutiny despite the voluntary nature of this facility,' Bhalla warned. Final word
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Business Standard
08-05-2025
- Business
- Business Standard
ITR filing for freelancers: Key tax tips to simplify the process
As tax season approaches, India's growing freelance community are navigating a maze of rules and forms. Filing income tax returns (ITR) as a freelancer comes with its own challenges and opportunities. Experts from tax and legal firms break down what every freelancer must know. Choose the right tax regime and form 'Freelancers are taxed just like salaried individuals under the applicable income tax slabs,' said Tarun Garg, Director at Deloitte India. He advised freelancers to compare both the old and new tax regimes each year. 'If opting out of the new regime, it is mandatory to file Form 10-IEA before the ITR,' he added. On selecting the correct ITR form, Garg explained, 'Freelancers should use ITR-4 if they're under the presumptive taxation scheme [Section 44ADA], and ITR-3 if they have complex income profiles like multiple house properties or capital gains.' Ritika Nayyar, Partner at Singhania & Co., echoed this, adding, 'Incorrect form selection is one of the most common mistakes freelancers make.' 'Income from freelance work must be reported under the 'Profits and Gains from Business or Profession' head,' said Garg. He recommended tracking TDS via Form 26AS and collecting Form 16A from clients. Freelancers must also pay advance tax if total liability exceeds ~10,000. Nayyar emphasised the importance of maintaining clean financial records. 'One must keep separate accounts for business and personal expenses and track all sources of income accurately,' he said. Eligible deductions freelancers can claim Freelancers can reduce taxable income by claiming a range of business-related expenses. 'These include rent, electricity, mobile and internet bills, software subscriptions, and even depreciation on laptops and cameras,' said Garg. Nayyar added, 'Proportionate expenses like home office utilities, legal fees, and business travel can be claimed if not using the presumptive scheme. Chapter VIA deductions -- like Sections 80C, 80D, and 80G-- are available in both regimes.' Should you opt for Section 44ADA? Section 44ADA offers a simpler route to tax compliance for many freelancers. 'Eligible professionals can declare 50 per cent or more of their gross receipts as taxable income,' said Kunal Savani, Partner at Cyril Amarchand Mangaldas. 'They are not required to maintain books or get audited, provided receipts stay within ~50 lakh or ~75 lakh, under certain conditions.' Nayyar added, 'It simplifies compliance and exempts eligible professionals from detailed bookkeeping. However, one cannot claim individual business expenses if using this scheme.' Avoid these common pitfalls Experts caution against frequent errors. 'Freelancers often fail to pay advance tax or maintain adequate records,' said Garg. 'This can lead to penalties under Sections 234B and 234C, or missed deductions.' 'Timely filing, correct form selection, and accurate reporting are crucial,' said Nayyar. 'Don't treat it as an afterthought, your ITR is your financial identity.'
