ITAT Delhi Clarifies: Once Form 10-IE Is Filed, New Tax Regime Option Continues Unless Withdrawn
Relief for Taxpayers Opting for Section 115BAC
The transition from the old tax regime to the new tax regime has generated numerous disputes, particularly regarding procedural requirements and the filing of Form 10-IE. In a taxpayer-friendly ruling, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has clarified that once Form 10-IE is validly filed, the option exercised under Section 115BAC continues to remain effective unless it is specifically withdrawn in accordance with law.
The Tribunal further held that merely because the taxpayer’s claim under the new tax regime was denied in an earlier year owing to the belated filing of the return of income, the option exercised through Form 10-IE does not automatically lapse. Consequently, the taxpayer was held entitled to the benefit of the concessional tax regime in the subsequent assessment year.
The decision is significant for thousands of taxpayers who have faced procedural disputes while opting for the new tax regime.
Understanding Section 115BAC
Section 115BAC was introduced to provide taxpayers with an alternative tax regime featuring lower tax rates in exchange for foregoing certain exemptions and deductions.
For taxpayers having business or professional income, the option to be taxed under the new regime is required to be exercised in the prescribed manner through Form 10-IE (now Form 10-IEA in certain cases following subsequent amendments).
Once the option is exercised, specific conditions govern its continuation and withdrawal.
The controversy in many cases has been whether procedural defects in one year automatically invalidate the option exercised through Form 10-IE for future years.
The Dispute Before the Tribunal
The taxpayer had filed Form 10-IE in an earlier assessment year expressing the intention to be governed by the new tax regime under Section 115BAC.
However, in that year, the return of income was filed belatedly. Since the law required the return to be filed within the prescribed due date for claiming the benefit, the taxpayer’s claim under Section 115BAC was denied for that particular assessment year.
In the subsequent year, the taxpayer again sought taxation under the new tax regime.
The Revenue denied the claim, contending that since the benefit had been rejected in the earlier year, the taxpayer could not automatically avail the new regime in the year under consideration.
The matter ultimately reached the ITAT.
What the ITAT Held
The Tribunal examined the statutory framework governing Section 115BAC and Form 10-IE.
It observed that the taxpayer had already exercised the option by filing Form 10-IE in an earlier year.
The Tribunal emphasized that the option exercised through Form 10-IE continues to remain operative unless it is expressly withdrawn as provided under the law.
The mere denial of the benefit in a particular assessment year due to a procedural lapse, such as delayed filing of the return, does not nullify or extinguish the option already exercised.
In other words, the rejection of the claim for one year does not automatically cancel the taxpayer’s election to be governed by the new tax regime.
Form 10-IE Remains Valid
A key takeaway from the decision is the Tribunal’s recognition that Form 10-IE is not a year-specific declaration that automatically expires upon denial of a claim.
Rather, it represents the taxpayer’s exercise of the statutory option under Section 115BAC.
Unless the taxpayer withdraws the option in accordance with the provisions of the Act, the declaration remains effective.
Therefore, the Revenue cannot treat the option as non-existent merely because the benefit was unavailable in an earlier year owing to non-compliance with procedural requirements.
Difference Between Eligibility and Exercise of Option
The ruling draws an important distinction between:
Exercise of Option
This refers to filing Form 10-IE and expressing the intention to be governed by Section 115BAC.
Eligibility for a Particular Year
This depends upon compliance with the conditions applicable for that assessment year, including timely filing of the return wherever required.
The Tribunal effectively held that while the taxpayer may lose the benefit for a specific year due to procedural non-compliance, the underlying option exercised through Form 10-IE does not vanish.
This distinction provides much-needed clarity on the operation of the new tax regime provisions.
Practical Significance of the Ruling
The decision will have considerable practical implications.
1. Protection Against Procedural Denials
Taxpayers who have filed Form 10-IE but were denied the benefit in a particular year due to technical or procedural reasons may still be entitled to claim the new tax regime in subsequent years.
2. Continuity of the Option
The ruling confirms that the option under Section 115BAC has continuity and does not require fresh exercise merely because a claim was rejected in an earlier assessment year.
3. Reduced Litigation
The judgment may help resolve numerous disputes where tax authorities have taken a narrow view of procedural lapses and attempted to deny the benefit of the new tax regime in later years.
4. Substance Over Form
The Tribunal’s approach reinforces the principle that substantive rights should not be defeated merely because of procedural defects in a particular year.
Important Caution for Taxpayers
While the decision is taxpayer-friendly, it should not be understood as diluting compliance requirements.
Taxpayers must continue to:
• File returns within the prescribed due dates wherever mandated;
• Exercise options within the prescribed timelines;
• Ensure proper filing of Form 10-IE or Form 10-IEA, as applicable;
• Comply with all statutory conditions governing Section 115BAC.
The ruling only clarifies that denial of the benefit in one year does not automatically invalidate the option already exercised.
Conclusion
The Delhi ITAT has delivered an important ruling that strengthens certainty in the operation of the new tax regime under Section 115BAC. The Tribunal has rightly distinguished between the exercise of the option and eligibility to claim the benefit in a particular year.
By holding that Form 10-IE continues to remain valid unless expressly withdrawn, the Tribunal has prevented an overly technical interpretation that could have deprived taxpayers of the benefit of the new tax regime for multiple years merely because of a procedural lapse in one assessment year.
The ruling underscores an important principle of tax administration: procedural defects may affect a claim for a particular year, but they do not automatically extinguish substantive rights unless the law specifically provides so.
For taxpayers who have opted for the new tax regime, this judgment provides welcome clarity and reassurance regarding the continuing validity of their election under Section 115BAC.
The copy of the order is as under:
