BACKGROUND

The new tax regime under section 115BAC of the Income Tax Act 1961, (IT Act) was introduced in Fiscal Year (FY) 2020-21. Section 115BAC of the IT Act provides for concessional tax rates with reduced deductions and exemptions. Further, the IT Act provides flexibility to the taxpayers to choose between the new regime and old regime. Until FY 2022-23, the old tax regime was the default regime, whereas the new tax regime was the optional one where the taxpayers were required to specifically opt in. In this regard, individuals had to file Form 10-IE to choose the new tax regime. 

The parallel operation of both the schemes have led to many disputes. Recently, the Pune Tax Tribunal¹ had an occasion to analyse whether the taxpayer can opt for old regime while filing tax return if he has already filed Form 10-IE. We, at BDO in India, have summarized this ruling and provided our comments on the impact of this decision hereunder:

FACTS OF THE CASE

The taxpayer, an individual, is engaged in business of manufacturing of cloth on looms. For FY 2021-22, he filed his tax return on 20 July 2022 by selecting old tax regime. However, before filing the tax return, the taxpayer had decided to opt for the new regime of taxation under section 115BAC of the IT Act and accordingly filed Form No.10-IE on 18 July 2022. The taxpayer filed the tax return under the old regime since the old regime was more beneficial. 

The tax officer processed the tax return by making addition to the income as per the new regime on the ground that the taxpayer had exercised the option by filing the requisite form i.e. Form No.10-IE. The first appellate authority upheld the order. 

Aggrieved, the taxpayer preferred an appeal before the Pune Tax Tribunal. The Pune Tax Tribunal, while ruling that the taxpayer's choice to opt for old regime was valid, made the following observations:

PUNE TAX TRIBUNAL RULING

• Although the taxpayer had originally exercised the option for taxation under section 115BAC of the IT Act by filing the Form No.10-IE on 18 July 2022, the taxpayer has filed the tax return under the old regime of taxation on 20 July 2022.
• The tax return was processed on 7 August 2023 after the date of filing the tax return. 
• It is not a case that the taxpayer has filed Form 10-IE and also filed the tax return under the new tax regime and thereafter filed a revised return withdrawing the option of new tax regime. In that case, such withdrawal is not permissible in the said FY and the taxpayer can change the option only in the next year. 
• However, the taxpayer herein has opted for the old regime of taxation in the tax return after filing the Form 10-IE. Therefore, the taxpayer cannot be forced to adopt for the new regime. 

BDO COMMENTS

This ruling is a welcome ruling which clarifies that procedural complexities will not take precedence over the provisions of the IT Act. While Section 115BAC of the IT Act was introduced with an intention to simplify the tax structure, the procedural formalities have resulted in disputes. This decision will also be relevant where taxpayer wishes to change from old regime to new regime even after filing form 10IEA. Recently, the Pune Tax Tribunal in Akshay Devendra Birari²  had allowed the benefit of the new tax regime even when Form 10-IE was filed way beyond the due date of filing tax return but before processing the tax return, thereby holding that requirement for filing of Form 10-IE is directory in nature and the beneficial provision cannot be denied merely because of procedural lapse. While from FY 2023-24 Form 10 IEA is to be used for opting out of default tax regime, the principle laid down in this decision may still be applied.

Further, one needs to evaluate the impact of this decision where the taxpayer has filed Form 10-IE / 10-IEA at the time of filling original tax return and later on in the revised tax return it wishes to switch to the default regime. 

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¹Akshay Nitin Malu v Income-tax Officer [IT APPEAL NO.1651 (PUN) OF 2024]
²Akshay Devendra Birari v DCIT [ITA No.782/PUN/2024]