Salaried taxpayers can switch every year, but for business owners and professionals, one wrong move could lock you in for years.
When the new tax regime under section 115BAC was announced, it came with the promise of simplicity and lower tax rates. For many salaried individuals, it genuinely offers that yearly flexibility. But the picture changes the moment you step into the shoes of a business owner or a professional. Here, the law brings in extra caution and stricter rules. And for good reason—business income comes with its own set of complexities.
For salaried taxpayers, the choice of tax regime is refreshingly simple. Each financial year, they can decide afresh whether the old regime or the new one works better. One year, you may have significant deductions—like housing loan interest, Section 80C investments or insurance premiums—making the old regime more attractive. The next year, if your deductions reduce, you can shift to the new regime and enjoy lower rates. This year-by-year flexibility makes tax planning almost like an annual optimisation exercise.
But for individuals with income under “Profits and Gains of Business or Profession,” this convenience does not exist. The law takes a far more rigid stance.
If you have business or professional income and you choose the new regime, you are essentially making a long-term decision. You can only switch back to the old regime once in your lifetime. Once you return, the doors to the new regime are closed for as long as you continue earning from business or profession.
This is a critical difference. Unlike a salaried taxpayer, you cannot treat this as a yearly tax puzzle. Your decision has strategic weight, and it may shape your tax outcomes for years to come.
The government’s rationale is straightforward. Business income is not as linear as salary income. It involves depreciation claims, carry-forward of losses, incentives, and a variety of deductions. Without restrictions, a taxpayer could take full benefit of deductions in the old regime during certain years and then conveniently hop into the new regime when profits spike. To prevent this kind of “cherry-picking,” the law sets boundaries.
Let’s bring this to life with two simple illustrations:
Case 1 – The Doctor with a Clinic
Dr. A earns ₹20 lakh in professional income. Under the old regime, he enjoys deductions on depreciation of clinic equipment, health insurance premiums, and other professional expenses. If he moves to the new regime, he benefits from lower tax rates but sacrifices these deductions. If he later realises the old regime was more beneficial, he can switch back—but only once. After that, the new regime is off-limits unless he stops professional practice altogether.
Case 2 – The Small Business Owner
Mr. B runs a trading business with brought-forward losses and unabsorbed depreciation. These are valuable tax shields in the old regime but are not recognised in the new one. If he opts into the new regime, these benefits lapse. Should profits rise later, he may regret his choice. He can go back to the old regime once, but that’s his final opportunity.
Both examples highlight how the “head of income” determines the rigidity of switching.
There is one window of relief. If a person no longer has business or professional income—say, a consultant retires and now only has pension or interest income—they regain the annual flexibility of a salaried individual. At that point, they can freely choose between regimes every year once again.
For business owners and professionals, choosing a tax regime is not just about comparing numbers in the current year. It is a strategic call that can shape your tax structure for many years. Salaried taxpayers may enjoy flexibility, but for those in business or profession, the decision demands foresight. Before opting in, weigh the long-term impact of losing deductions, carrying forward losses, and the inability to reverse course more than once.
In short, while the old vs new tax regime debate will always continue, remember this: if your income arises from business or profession, you are not choosing just a tax rate—you are choosing a framework for your financial future.
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