These individuals can't switch between old and new income tax regimes every year

As per budget proposals, an individual has an option to switch between new and old tax regime every year. In order to be eligible to opt for the tax structure as per an individual's convenience, there is one condition that must be satisfied.

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A consultant's income is charged as business income and not salary income.
Budget 2020 proposes to allow a taxpayer to choose between the existing income tax regime (availing benefits of tax exemptions and deductions) and a new tax regime (lower income tax rates with no tax exemptions and deductions) every year as per their convenience.

However, in order to be eligible to opt for the tax structure as per an individual's convenience, there is one condition that must be satisfied.

  • Condition that must be satisfied
According to the explanatory memorandum to the Finance Bill, taxpayers having business income are not eligible to choose between the existing tax regime and new tax regime every year. This would mean that salaried individuals and pensioners would be eligible to switch between new tax regime and old tax regime as per their convenience every year provided they don't have business income.


However, a consultant's income is charged as business income and not salary income. Therefore, individuals who work as consultants will not be eligible to switch between the new and old regime every year.

What about salaried individuals who also earn income from freelancing activities? Can they switch between the two regimes on a year to year basis?

Abhishek Soni, CEO & Founder, Tax2win.in, an ITR filing website says, "Unlike salaried individuals and pensioners, who can choose between new tax regime and existing tax regime every year as per their convenience, the individuals having business income such as consultants or salaried individuals having income from their freelancing activities do not have this option of choosing between the two tax regimes every year."

What if I have business income and opt for the new tax regime?
Aarti Raote, Partner, Deloitte India says, "If individuals having business income have opted for new income tax regime, then they will continue to pay their income tax liability as per the new regime in the future financial years as well."

In case an individual with business income wants to switch back to the old tax regime which has tax-exemptions and deductions, then he/she can do it but only once in a lifetime. Thus, once the above mentioned individual has switched back to the old tax regime, then he/she cannot switch back to the new tax regime again.

Soni says, "Individuals with business income who have opted for the new tax regime have once in a lifetime option to switch back to the old/existing tax regime and again continue availing deductions and tax exemptions. However, once this option of reverting back to the old tax regime is exercised, then the individual in future years cannot opt for the new tax regime again."

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What if business income ceases to exist in future years?
What if the individual's business income ceases to exist in future years? Will the individual then be able to choose between the existing tax regime and the new one and that too as per his/her convenience every year?

Soni says, "If an individual's business income ceases to exist in the future years, then they have an option to switch back again to the new tax regime as per his/her convenience every year or they can continue with old tax regime as well."
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Raote adds, "Once the individual ceases to have business income, the right to opt between the existing tax regime and new tax regime in every financial year is activated. This brings parity between such assessees and non-business income assesses."
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