IT: Condition on Switching Income Tax Scheme & Who Can’t?

Budget 2020 had many surprises but one thing which is getting most of the attention is that It now allows a taxpayer to choose between the existing income tax regime and a new tax regime every year as per their convenience. While the existing income tax regime features availing benefits of tax exemptions and deductions, on the other hand, the new tax regime features lower income tax rates Get the details on income tax rates for FY 2019-20 (AY 2020-21). Various rates are provided such as Individual/HUF, Companies, Partnership Firms. Read More with no tax exemptions and deductions. Switching from one tax regime to another seems easy but in order to be eligible to choose the tax structure as per an individual’s convenience, there is one condition that must be fulfilled.

The Condition that Must be Satisfied

The explanatory notices/ memorandum to the Finance Bill reveals that Taxpayers having a business income will be not eligible to switch between the current (existing) tax regime and new tax regime every year. It also means that salaried persons along with pensioners are eligible to choose between old and new tax regimes as per their convenience every year, but only when they don’t have business income. However, a consultant’s income will be considered as business income and not salary income. Thus, people who work as consultants will not be eligible to change regimes every year.

It Also Raises Some Question Some of them are:

What regarding salaried people who also receive from freelancing projects? Can they be acceptable to switch among the two regimes on a year to year basis?

Abhishek Soni who is CEO & Founder of an ITR filing Read the easy guide on e-filing of IT return online in India. Step by step guide to filing income tax returns through official income tax department portal website says, “Unlike salaried or pensioners individuals, who are eligible to change between new and existing tax regime every year as per their convenience, the salaried individuals having income from their freelancing activities and work are not eligible for choosing between the two tax regimes every year.”

What if I hold business income and opt for the latest tax regime?

If an individual with business income is willing to switch back to the old tax regime, then he/ she switch the tax regime but only once in a lifetime. It means if someone with business income has switched back to the old tax regime, then he/she cannot switch back to the new tax regime again and vise-versa.

What if business revenue stops to survive in the coming years?

Will the person then be empowered to decide among the current tax regime and the new one and that too as per his/her preference every year?

To answer this question Soni further added that “If the business income of an individual ceases to exist in the future years, then they will have an option to return back to the new tax regime as per their convenience every year or they can continue with old tax regime as well.”

Raote in the same said that “When the individual ceases to have business income, the option to switch between the existing and new tax regime in every financial year will be activated. This will brings equality between such assessees and non-business income assesses.”