Switching tax regimes in 2025: What salaried and business taxpayers need to know

Filing your Income Tax Return (ITR) in 2025? If you're wondering whether you can shift between the new and old tax regimes, you're not alone. The ability to switch depends on your source of income—whether it's from a salary or a business. Here's a detailed guide on how often you can change tax regimes and what to keep in mind before filing.

What are the old and new tax regimes?

The government introduced a new tax regime in 2020 with lower slab rates but without the standard deductions and exemptions available under the old regime. Taxpayers can choose between these two options every financial year, but the rules for switching between them are not the same for everyone.

If you have income from salary or other sources

If your income is from salary, interest, rent, or other non-business sources, you're allowed to switch between the new and old tax regimes every year.

Here’s how it works:

• You can assess which regime offers better tax savings each year.
• You must indicate your choice before filing your ITR under Section 139(1).
• There's no limit on the number of times you can change your tax regime.
• If you use the new regime one year and find the old one better the next, you can switch again—no problem.

This flexibility allows salaried individuals and pensioners to optimize their tax savings year after year.

If you have income from business or profession

Taxpayers who earn income from business or profession face stricter rules when it comes to switching between regimes.

Here’s what you need to know:

• You can opt for the new regime once. If you later decide to switch back to the old regime, this change is allowed only once in your lifetime.
• After opting out of the new regime, you cannot revert to it in future years.
• To make this switch, you must file Form 10-IEA before the due date of your return (under Section 139(1)).

This rule makes your choice practically permanent, so it's crucial to evaluate the tax benefits thoroughly with a financial advisor if you're self-employed or run a business.

The new regime is now the default

• As per the Finance Act 2024, the new tax regime is now the default option. This means:
• If you do not explicitly choose the old tax regime while filing your return, you will automatically be taxed under the new one.
• However, you can still opt for the old regime by submitting Form 10-IEA within the deadline.

Key takeaway for 2025

• Salaried individuals can switch tax regimes every year.
• Business owners or professionals can opt out of the new regime only once, and that choice is permanent.
• The new regime is now the default, but you can choose otherwise if you file the right form on time.

Choosing the right tax regime can have a significant impact on your net tax liability. Salaried individuals enjoy flexibility, while business owners need to choose carefully. If you're unsure, consider using online calculators or consulting a tax expert to decide which regime benefits you the most before filing your ITR.