ITR Filing Extended to Sept 15: How to Choose Between Old and New Tax Regimes

New Delhi, Aug 2025 : With the deadline for filing Income Tax Returns (ITR) extended to September 15, taxpayers now have additional time to evaluate and choose between the old and new tax regimes. This decision is crucial, as it directly impacts tax liabilities and benefits for the assessment year.

For salaried individuals and pensioners without business income, switching between the old and new tax regimes is relatively simple. They can opt for the preferred regime every year while filing ITR-1 or ITR-2 by selecting the appropriate option on the form. However, for those with business or professional income, the flexibility is limited. Such taxpayers are allowed to switch back to the old tax regime only once in their lifetime. After that, the selected regime becomes permanent unless business income ceases.

To opt out of the new tax regime and revert to the old one, taxpayers with business or professional income must file Form 10-IEA before the ITR deadline. If this form is not filed on time, the new tax regime automatically applies by default, leaving no room for changes for that assessment year.

Understanding the key differences between the two regimes is essential for making an informed choice. The old tax regime offers various exemptions and deductions, including House Rent Allowance (HRA), Leave Travel Allowance (LTA), deductions under Sections 80C to 80U, and home loan interest under Section 24(b). These benefits are not available in the new regime, which has done away with most exemptions and deductions in favour of lower tax rates.

However, the new regime provides a significant advantage through a full tax rebate for individuals with taxable income up to Rs 7 lakh. With additional standard deductions, individuals with income up to Rs 7.5 lakh to Rs 12 lakh may still find the new regime beneficial due to reduced slab rates. The tax slabs under the new regime are structured as follows: no tax on income up to Rs 4 lakh, 5% on Rs 4-8 lakh, 10% on Rs 8-12 lakh, and 15% on Rs 12-16 lakh, with rates progressively increasing thereafter.

One major limitation of the new regime is the restricted set of deductions. Only contributions under Sections 80CCD(2) (employer’s NPS contribution) and 80CCH(2) (Agniveer Corpus Fund) are allowed. Popular deductions under Section 80C, such as LIC premiums, PPF, ELSS investments, and other tax-saving instruments, are excluded.

Taxpayers should assess their salary structure, investment profile, and eligibility for deductions before deciding. For those with minimal deductions, the new regime’s simplicity and lower rates may offer benefits. However, individuals who claim substantial deductions on housing loans, insurance premiums, medical expenses, or receive significant HRA, may find the old regime more tax-efficient.

Additionally, losses from house property, capital gains, or business income cannot be carried forward under the new regime, which could impact future tax liabilities.

Tax experts generally advise that unless a taxpayer has substantial deductions, especially under Section 24(b) for home loan interest or a large HRA component, the new regime is likely to be more beneficial for the majority.

Team Maverick.