Can I switch tax regime mid-year? (salaried vs business income)

You are in November. You picked the old regime in April, or the new one, and now you are wondering whether you can change. Or you started a small business on the side this year and want to know if that changes your choice.

The short answer: the law does not treat the choice as something you make "mid-year". It is made for the assessment year as a whole, and the way you make it depends on one thing. Do you have income from business or profession, or not?

This note covers returns for AY 2026-27 (income of FY 2025-26), which are governed by the Income-tax Act, 1961 as amended by the Finance Act 2026. A short section at the end covers the Income-tax Act, 2025, which applies from tax year 2026-27.

First, what is the "regime choice"?

For an individual or a Hindu undivided family, the new regime is the default. Section 115BAC(1A) of the Income-tax Act, 1961 computes the tax at the new-regime rates for AY 2026-27 unless the person has exercised an option under sub-section (6) (the words of s.115BAC(1A): "other than a person who has exercised an option under sub-section (6)").

So the question is not "can I move into the new regime". You are already in it unless you opted out. The question is "can I opt out, and can I come back".

If you want the numbers behind the choice, read our comparisons first: New vs Old Tax Regime: The Honest Comparison for FY 2025-26 and New vs Old Tax Regime: Which Is Better for You in FY 2025-26?. This note is only about the switching rule.

Why "mid-year" is the wrong frame

Section 115BAC(6) of the Income-tax Act, 1961 speaks of an option exercised "for any assessment year". The tax is worked out on your total income for the whole previous year. There is no half-year in one regime and half in the other.

What happens during the year is a separate matter: how much tax is deducted from your pay or paid in advance. That is only a running estimate. The final regime is fixed when the return is filed (for salaried people) or by the due date (for business income), as explained below. Whatever your employer assumed in April, the return can look different.

This note does not describe how an employer must treat your regime intimation for deducting tax from salary. Ask your payroll team what they need from you and by when. Treat that as a practical step, not a legal one.

If you are salaried (no business or professional income)

Section 115BAC(6)(ii) of the Income-tax Act, 1961 applies to "a person not having income" from business or profession. For such a person the option is exercised "along with the return of income to be furnished under sub-section (1) of section 139 for such assessment year".

In plain words:

• You choose when you file the return, for that year only.
• There is no clause in s.115BAC(6)(ii) saying the choice carries over to later years or that you can use it only once. The "once exercised shall apply to subsequent assessment years" words sit in clause (i), the business-income clause.
• The proviso that limits the option to one withdrawal speaks only of "the option under clause (i)". Clause (ii) has no such words. So, on the text, a salaried individual can take the old regime one year and the new regime the next, by choosing again at filing. This is a reading of the wording, so have a CA confirm it for your facts.

Three cautions. First, the option has to be exercised in the manner prescribed. Fill the regime selection in the return itself, and check the return form's instructions on the portal for the current year. Second, clause (ii) refers to the return under s.139(1). For AY 2026-27 the 31st July date for this group has already passed, so a return filed now is a belated return under s.139(4). Whether and how the option can be exercised with a belated return is something to ask a CA before you file. Third, if you earn any business or professional income in the year, you move to the other group, covered next.

The employer's April estimate does not bind you. If your employer deducted tax on the basis of one regime and you file under the other, the difference shows up in the return as refund or tax payable. Do not file just to match the payroll; compute both and file the one that is correct for your facts.

If you have business or professional income

This group has a much tighter rule. Section 115BAC(6)(i) of the Income-tax Act, 1961 says the option is to be exercised "on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for such assessment year", and "such option once exercised shall apply to subsequent assessment years".

Then the proviso to s.115BAC(6) sets the limit: the option "once exercised for any previous year can be withdrawn only once for a previous year other than the year in which it was exercised and thereafter, the person shall never be eligible to exercise the option under this sub-section, except where such person ceases to have any income from business or profession in which case option under clause (ii) shall be available."

Read that slowly. For a person with business income:

• Opting out of the new regime (choosing the old one) is done by the prescribed form, by the due date under s.139(1). The wording of the Act says "in the manner as may be prescribed". Check the portal for the form and the current procedure.
• Once you opt out, that continues for later years. You do not re-decide each year.
• You can withdraw the opt-out only once, in a year other than the year you made it. That puts you back in the new regime.
• After that, you can never opt out again. The exception is if you stop having business or professional income altogether. Then the salaried-type rule (clause (ii)) is available.

So "switch back and forth every year" is not available to a person with business income. You get one exit and one return, in that order, and then the door shuts.

The due date is the real clock

For business income, the clock is the due date under s.139(1), not the date you actually file. Explanation 2 to s.139(1) of the Income-tax Act, 1961 (as substituted by Act 4 of 2026 with effect from 1 March 2026) gives the due dates in a table of persons and conditions. In summary:

• where the transfer pricing provisions of s.92E apply: 30th November;
• a company, or an assessee (other than a company) whose accounts are required to be audited under the Act or any other law, or a partner of such an audited firm (or that partner's spouse, if s.5A applies), where s.92E does not apply: 31st October;
• an assessee with income from business or profession whose accounts are not required to be audited, or a partner of such a non-audited firm (or that partner's spouse, if s.5A applies), where s.92E does not apply: 31st August;
• any other assessee: 31st July.

The table has more conditions than this summary, so read it for your own category.

For AY 2026-27, CBDT Circular No. 07/2026 dated 28 September 2026 extended the due date for the persons at serial number 2 of that table (the 31st October group) from 31.10.2026 to 21.11.2026. It does not extend the other groups.

The practical point: the Act ties the option to the s.139(1) due date. If the due date for your category has passed and you did not exercise the option by then, whether a belated return under s.139(4) can still carry the option is a question to put to a CA before you file. The answer depends on what you already did earlier.

Mixed cases: salary plus a side business

If you have salary and also profit from a small business or a profession in the same year, you are a person "having income from business or profession". Your regime choice is then governed by s.115BAC(6)(i) with its due-date test and the once-only withdrawal, not by the salaried clause.

This is the case people miss. Someone who is salaried for years, starts freelancing or trading in the year, and then wants to flip regimes every year is no longer in the free-switching group for that year. That does not mean the old regime is lost. It means the choice becomes sticky, so choose with the longer view.

Equally, if the business income stops, the proviso lets you rely on clause (ii) again.

What not to do

• Do not assume your employer's declaration form decides your regime for the return. It guides the tax deducted, but the return is where the regime is fixed.
• Do not opt out of the new regime for a business-income year just because one year looks better. The opt-out continues into later years, and you have only one withdrawal.
• Do not wait for the belated return to decide, if you have business income. The option is tied to the s.139(1) due date.
• Do not copy a friend's choice. The comparison depends on your own deductions and income mix.

What to do now

Have a CA review your facts before you act or file.

Income-tax Act, 2025 from tax year 2026-27

The Income-tax Act, 2025 applies from 1 April 2026, so tax year 2026-27 (the income of the year starting 1 April 2026) falls under it. The Central Board of Direct Taxes' section mapping table matches s.115BAC of the 1961 Act with section 202 of the 2025 Act ("New tax regime for individuals, Hindu undivided family and others").

Section 202(1) of the Income-tax Act, 2025 keeps the same shape: the tax is computed under the table in that section "unless the person exercises the option in the manner provided under sub-section (4)". Section 202(4) separates the two groups in the same way:

• For a person with business or profession income, the option is exercised on or before the due date under section 263(1), it applies to later tax years, it can be withdrawn only once for a tax year other than the one it was exercised for, and after that the person is never eligible again, unless business income ceases, when clause (b) is available.
• For a person without such income, the option is exercised along with the return under section 263(1) for the tax year.

So the structure you read above carries forward. The section numbers and the word "tax year" change; the idea does not. This does not change anything for the return you file for FY 2025-26, which stays under the 1961 Act.

Frequently asked questions

Can I change from the new regime to the old regime after my employer has started deducting tax?

If you are salaried with no business income, the regime is fixed in the return. Section 115BAC(6)(ii) of the Income-tax Act, 1961 lets you exercise the option along with the return. What your employer deducted is only the tax paid in advance; any difference is settled in the return.

I filed under the old regime last year. Do I have to stay there?

If you have no business or professional income, there is nothing in the words of s.115BAC(6)(ii) tying you to last year's choice. Have a CA confirm this for your facts. If you have business income and exercised the opt-out, it continues for later years, subject to the single withdrawal in the proviso to s.115BAC(6).

I have a side business and a salary. Which rule applies to me?

You have income from business or profession, so s.115BAC(6)(i) applies: due-date test, continuing effect, and one withdrawal. Please have a CA check your facts, because whether an activity is business income is a question of fact.

Which form do I use to opt out for business income?

The Act says the option is exercised "in the manner as may be prescribed". Use the prescribed form and check the portal for the current form and process before the due date.

Can I withdraw my opt-out and later opt out again?

No. The proviso to s.115BAC(6) allows one withdrawal, and "thereafter, the person shall never be eligible" to exercise the option, unless business or professional income ceases.

Does the Income-tax Act, 2025 change this?

For tax year 2026-27 onwards the rule sits in section 202(4) of the Income-tax Act, 2025, with the same two-group structure. Returns for AY 2026-27 remain under the 1961 Act.

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