ITR Filing FY 2025-26: Can You Switch Tax Regimes Every Year?

As taxpayers prepare for the upcoming filing season, choosing between the old and new income tax regimes remains a critical financial decision. While your preference may shift based on life events like home loans or investments, the ability to switch depends entirely on your source of income.

Flexibility Based on Income Type

The rules for switching between tax regimes are not uniform; they are strictly divided based on whether a taxpayer earns professional or business income. The new tax regime is currently the default option for all individual taxpayers, but the ability to opt out varies significantly.

For individuals who do not have business or professional income—such as salaried employees—there is a high degree of flexibility. These taxpayers can evaluate their financial situation each year and choose between the old and new regimes annually. This allows for strategic shifts; for instance, you might opt for the old regime in a year when you have high deductions from home loan interest, and switch to the new regime once that loan is repaid.

The Restriction for Business and Professionals

If you earn income from a business or a profession, the rules are much more stringent. According to Richa Sawhney, Partner Tax at Grant Thornton Bharat LLP, once a taxpayer with business income opts for the old tax regime, that decision becomes binding for subsequent years.

While there is a provision to withdraw this option and switch back to the new regime, it can only be done once. The only exception to this rule is if the individual ceases to have business or professional income altogether. This tighter framework is designed to ensure continuity, as business tax positions often involve complex, multi-year factors like depreciation and carried-forward losses that require long-term stability.

Critical Deadlines and Compliance

Timing is just as important as the choice itself when it comes to ITR filing for FY 2025-26. To successfully opt for the old income tax regime, taxpayers must file their returns within the prescribed deadline, which is July 31, 2026.

Failing to meet this deadline by filing a belated return has significant consequences: any belated tax return will automatically default you to the new tax regime, potentially costing you money if you were relying on deductions available only under the old system. For the upcoming filing season, taxpayers should note that Section 115BAC will govern the new tax regime provisions.

Key Takeaways