ITR Filing: Can you change your tax regime from previous year while submitting belated ITR?

The original ITR filing date for FY 2022-23 (AY 2023-24) was July 31, 2023. If an individual has missed this deadline, there is no need to panic because they can still submit ITR by paying a penalty. A belated ITR is one that is filed after the initial ITR’s deadline has passed. The deadline to file a belated ITR for the financial year 2022-23 (Academic Years 2023-24) is December 31, 2023.

To submit a late ITR, a person must pay a penalty of Rs.5,000 if their net taxable income exceeds Rs.5 lakh, or Rs.1,000 if their net taxable income is less than Rs 5 lakh. Penalty interest on unpaid income taxes, if any, must also be paid.

A belated ITR is submitted in the same manner as a the original ITR, with a few exceptions. However, if you wish to change your tax regime (from the one you picked the previous year) when submitting a late ITR, it is an entirely different matter that is depending on your source of income. For example, a person who submitted an ITR under the previous tax regime for FY 2021-22 may wish to file a belated ITR under the new tax regime for FY 2022-23.

New tax regime for FY 2022-23 can be opted by salaried person in belated ITR?

If an individual has income from salary, house property, or other sources but no income from business or profession in FY 2022-23 (AY 2023-24), the sole method to opt for the new tax regime is to file their ITR before July 31, 2023 (original ITR).

If a person files a late return under section 139(4) for FY 2022-23 (AY 2023-24), the new tax system cannot be chosen.

Who can convert to the new tax regime in the Belated ITR for FY 2022-23?

Those with business or professional income can opt in or out of the new tax regime by notifying the income tax department of their preference on Form 10-IE.

Individuals with business/profession income must opt in (for new regime) by submitting Form 10-IE on or before the due date for filing initial return of income under section 139(1). Once Form 10-IE is filed by the due date for filing the original ITR, the claim for the new tax regime can be made in the original ITR under section 139(1) or in the belated return under section 139(4).

Once Form 10-IE is filed, it is relevant for consecutive years until another Form 10-IE is filed revoking agreement to regime change. As a result, if an individual has already filed Form 10-IE in FY 2021-22 by the original ITR due date to opt for the new tax regime, he can continue to file ITR (original or belated) in the new tax regime for FY 2022-23 (AY 2023-24).

Changing tax regimes is only permitted once in a lifetime for businesspeople/professionals

Individuals with business or professional income are not entitled to select a tax regime each year. When they choose the new tax system, they have a once-in-a-lifetime opportunity to revert to the previous tax regime. They will be unable to pick the new tax system in the future if they return to the old tax regime.

This is relevant for FY 2022-23 (AY 2023-24) as the law regarding the default tax regime has changed from FY 2023-24 (AY 2024-25) onwards.

Switching between Tax Regime in belated ITR not possible in all cases

According to experts, the Income Tax Act states that in order to opt out of the old tax regime and into the new tax regime, Form 10-IE must be completed prior to the ITR deadline. However, the legislation pertaining to the converse, that is, opting out of the new tax regime and returning to the old tax regime, is unclear.

The provision of the Income-tax Act of 1961 that allows withdrawal from the new regime does not specify a time restriction for doing so.

According to a simple interpretation of the laws, the assessee may utilise the aforementioned withdrawal option under the original, amended, or belated return by completing Form 10-IE prior to filing ITR.

However, if Form 10-IE is filed after the due date for submitting the original ITR, the tax department may raise objections or send a notice regarding the withdrawal from the new regime.