Rs 1.23 lakh tax demand for new tax regime ITR

Mr Shah, residing on Ali Asker Road in Bengaluru, submitted his income tax return (ITR) under the new tax regime and reported an income of Rs 32.55 lakh. Regrettably, on September 30, 2025, his advisor inadvertently filed Form No. 10-IEA, which opted Mr Shah out of the new tax regime. This oversight led to him being taxed under the old tax regime, despite his intention to remain in the new regime.

In response, Mr Shah contended that the error was made by his advisor during regular compliance tasks and did not reflect his genuine intent. He emphasized that his ITR explicitly demonstrated his decision to stay in the new tax regime. Unfortunately, on January 29, 2026, the Centralised Processing Centre (CPC) in Bengaluru processed his ITR under the old tax regime, believing in the option form's authenticity.

Consequently, Mr Shah was now obligated to pay an additional Rs 1.23 lakh in taxes due to the CPC's reliance on the option form, which opted him out of the new regime. The Commissioner of Appeals (CIT A) dismissed Mr Shah's arguments, prompting him to appeal to the Income Tax Appellate Tribunal (ITAT) Bangalore. Represented by advocate Varun S, Mr Shah secured a victory on August 17, 2026.

The ITAT Bangalore ruled in Mr Shah's favor, noting that the subsequent ITR filed after the mistaken Form 10-IEA submission clearly and consistently computed his tax under the New Tax Regime. The tribunal acknowledged that the income-tax return is the statutory document through which a taxpayer declares income and calculates the tax payable and the tax regime. Shah's ITR, filed following the erroneous Form 10-IEA, unequivocally indicated his commitment to the new tax regime.

Furthermore, the ITAT Bangalore emphasized that Mr Shah had not attempted to benefit from both regimes simultaneously, claiming deductions, exemptions, or allowances exclusive to the Old Tax Regime while seeking lower tax rates under the New Tax Regime. This case followed a similar decision made by the Pune Tribunal in Akshay Nitin Malu v.

ITO [2025] 173 taxmann.com 684, where a taxpayer initially filed under the New Tax Regime but later submitted the return under the Old Tax Regime. The Pune ITAT held that the taxpayer's choice should be respected based on the later filed return.

The ITAT Bangalore concluded that the principle applied to Mr Shah's case, despite the change in direction. The tribunal upheld the New Tax Regime as reflected in Shah's subsequent ITR, particularly when the earlier Form 10-IEA was explained as an inadvertent filing with no claim of conflicting tax benefits. As a result, Mr Shah won the case, and the CIT(A) order was set aside.

The AO/CPC was directed to process his return under Section 115BAC(1A), recomputing the tax liability accordingly, leading to the deletion of the consequential demand based on the Old Tax Regime. From April 1, 2026, filing Form 10-IEA is no longer necessary, as per Section 202(4) of the Income Tax Act, 2025, and Rule 136 of the Income Tax Rules, 2026.