Have freelance income? Know this before switching to new tax regime
The Union budget 2020 had introduced a new tax regime with lower tax rates but also fewer tax deductions available for a taxpayer to claim. This is the first assessment year when taxpayers can choose to opt for the new tax regime. The finance bill also allows taxpayers to switch between the old and new tax regimes in the subsequent assessment years, but the rules are not the same for everyone.
The finance bill 2020 allows salaried individuals and pensioners with no business income to switch between the two tax regimes every assessment year as per their prevailing financial situation. But those with a business income do not have this luxury.
If a non-salaried taxpayer switches to the new tax regime in the current assessment year, she will have the option to switch back to the old regime only once in her life. Once she exercises this option to go back to the old tax regime, she cannot opt for the tax rates in the new regime again.
This rule applies to every individual with an income from business or profession.
Since freelance income is counted as business income, freelancers and even salaried individuals who have earned freelance income in a financial year too won’t have the option to keep switching between the two options ever year.
However, when income from business stops for an individual, she will again have the option to opt between the two regimes in the subsequent assessment years.
Freelancers, professionals and those with business income have to choose between the two regimes right before they file their income tax returns (ITR). Those who are yet to file their ITR this year are advised to carefully calculate their tax liability under both the options before choosing the new tax regime as they can opt-out of it only once in the future.
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