The Union Budget 2020 has announced a new optional tax regime for this financial year, under which taxpayers can avail reduced tax rates. In order to opt for the new tax regime, individuals would have to give up the deductions and exemptions they enjoyed under the old tax system. FM Nirmala Sitharaman also said that taxpayers can choose between the old and new tax system each financial year while filing their income tax returns till we have two different systems. However, there are a set of taxpayers that won’t be able to switch between the two regimes.
Salaried persons and pensioners will be able to switch between the new regime. Any taxpayer who wishes to switch between the systems needs to fulfill one condition which requires your income not be declared under the business income group. This means that individuals who earn income from business cannot switch from the old tax regime to new tax regime.
A few categories of taxpayers fall under this group such as consultants. As a consultant’s income is considered and charged as business income and not income from salary, they will be unable to switch tax regimes after choosing one for this financial year. Apart from consultants, taxpayers such as salaried individuals earning their income through freelancing will also not have the option to choose between the two tax regimes in every financial year.
If an individual with a business income has already claimed deductions and tax exemptions available under the Income Tax Act, it will be assumed that they have chosen the old income tax regime, and won’t be eligible for the new tax regime in their lifetime. However, in case if they want to take a switch from the current chosen regime, they are eligible to do so once in their whole lifetime. Which will clearly mean that they won’t be able to switch to the old regime again.
In the given clause it is also mentioned that, if the person’s business income ceases to exist in future years, they can switch to new regime or remain in the old regime as per their convenience.