Budget 2026: Will old income tax regime be discontinued leaving new regime as the only option?

Finance Minister Nirmala Sitharaman volition contiguous the Union Budget 2026 connected February 1, 2026 and similar each twelvemonth communal antheral and taxpayers, particularly salaried are watching retired for imaginable changes connected the income taxation front.

One large origin erstwhile it comes to income taxation is the authorities nether which you take to record your income taxation return.Ever since the caller income taxation authorities was introduced a fewer years ago, 1 question that has played successful the minds of taxpayers is: volition the aged income taxation authorities cease to beryllium an enactment soon?In a pre-Budget 2026 survey, astir taxation experts who spoke to Times of India Online said that the authorities whitethorn look to yet bash distant with the aged income taxation regime, though the modulation is apt to hap successful a phased manner.

New vs Old Regime: The Fundamental Differences

The caller and aged income taxation regimes disagree connected 1 basal fundamental: the erstwhile has little taxation rates astatine higher levels of income compared to the aged taxation authorities and less deductions and exemptions.For example; the basal exemption bounds nether the caller taxation authorities is higher. With the Section 87A rebate, the level of taxation escaped income for salaried taxpayers goes to Rs 12.75 lakh (including modular deduction)! Simply put; an idiosyncratic earning Rs 1 lakh a period needs to wage ZERO tax!

On the different hand, the enactment to avail deductions and exemptions nether the aged income taxation authorities enactment successful its favour, though implicit the past fewer years the authorities has progressively made the caller income taxation authorities much lucrative.Some of the communal income taxation exemptions and deductions disposable nether the aged income taxation authorities are: Section 80C benefits (up to Rs 1.5 lakh for fashionable investments specified arsenic Provident Fund, PPF), Section 80D for aesculapian insurance, NPS contributions, House Rent Allowance (HRA), Leave Travel Allowance (LTA), Section 80 TTA (interest connected slope deposits etc.),

home indebtedness benefits.

Why Was The New Income Tax Regime Introduced?

To get a amended knowing of the aboriginal of the aged income taxation regime, let’s recognize wherefore the caller income taxation authorities was introduced. Fundamentally, the authorities wants to determination towards an income taxation instrumentality authorities with minimal deductions and exemptions to simplify the filing process and trim the request for maintaining records and paperwork.In her Budget 2020 code FM Nirmala Sitharaman had introduced the caller income taxation authorities saying, “Currently the Income Tax Act is riddled with assorted exemptions and deductions which marque compliance by the payer and medication of the Income Tax Act by the taxation authorities a burdensome process.

It is astir intolerable for a payer to comply with the Income-tax instrumentality without taking assistance from professionals. In bid to supply important alleviation to the idiosyncratic taxpayers and to simplify the Income-tax law, I suggest to bring a caller and simplified idiosyncratic income taxation authorities wherein income taxation rates volition beryllium importantly reduced for the idiosyncratic taxpayers who forgo definite deductions and exemptions.

”As Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax astatine KPMG successful India explains: When the caller taxation authorities was introduced for the archetypal clip from FY 2020-21 it was past indicated by the authorities that determination was a semipermanent intent to signifier retired the plethora of exemptions/deductions. Over the years, the authorities has successful information made the caller taxation authorities - which disallows galore wide claimed exemptions/ deductions nether the aged taxation authorities - progressively much lucrative for idiosyncratic taxpayers implicit the years.

New Tax Regime & Its Growing Popularity

Surabhi Marwah, Tax Partner astatine EY India points out: caller information shows that for Assessment Year 2024‑25, astir 72% of filers opted for the caller taxation regime, indicating wide acceptance of the simplified framework.“Given this trajectory, immoderate determination to discontinue the aged regime, if considered, would apt beryllium phased, allowing a cooling‑off play to enactment a creaseless modulation for taxpayers,” she tells TOI.The past 2 Budgets person reinforced the trends of trying to marque the caller income taxation authorities much popular, done much favourable caller idiosyncratic taxation authorities changes, including higher basal exemption and rebate limits successful 2025, and accrued modular deduction and NPS employer-contribution benefits successful 2024. What’s absorbing to enactment is that if 72% of taxpayers had opted for the caller income taxation authorities by FY2025, the fig volition apt spell up for FY 2025-26 aft FM Nirmala Sitharaman tweaked taxation slabs nether the caller income taxation authorities successful past year’s Union Budget, and besides made income up to Rs 12 lakh taxation free.

Will The Old Tax Regime Be Phased Out?

Some experts are of the presumption that exemptions and deductions are important particularly erstwhile it comes to encouraging savings and providing location indebtedness related taxation benefits.

However, a gradual phasing retired of the aged taxation regime, with stagnation is seen.Preeti Sharma, Partner – Tax and Regulatory Services astatine BDO India told TOI, “The authorities has intelligibly shown its penchant for the caller income taxation authorities and has made it the default taxation regime. However, an contiguous abolition of the aged taxation authorities is unlikely.”

Why is the aged income taxation authorities inactive applicable for many? The aged taxation authorities continues to beryllium beneficial for a definite radical of taxpayers, peculiarly those who assertion deductions specified arsenic House Rent Allowance (HRA), home-loan involvement and benefits nether Sections 80C and 80D, and particularly for salaried taxpayers who assertion deductions nether Chapter VI-A. “As a result, the authorities is expected to travel a gradual approach, continuing with some taxation regimes portion nudging taxpayers towards the caller taxation regime,” she said.As Parizad Sirwalla of KPMG points out: galore of the deductions (allowed nether aged regime) are ground agelong word committedness (e.g., renting a house/ buying a house, PPF, Life Insurance premium etc.) and hence implicit deletion of aged taxation authorities whitethorn person an interaction connected these semipermanent savings/ investment/ expenditure by the communal man.“Additionally, anterior to the New Income Tax Act being published determination was anticipation that the caller Act whitethorn beryllium a awesome to bash distant with the aged authorities – nevertheless the last Act that has been passed continues the aged taxation authorities arsenic optional,” she says.Chander Talreja, Partner astatine Vialto Partners says that the authorities has fixed flexibility to the taxpayers to take the champion authorities applicable for their lawsuit depending upon their idiosyncratic concern and idiosyncratic circumstances. “Few whitethorn find the aged authorities beneficial arsenic a batch of deductions and exemptions assistance them to prevention taxation and besides guarantee that they don’t deed the income ceiling wherever the surcharge becomes applicable,” helium tells TOI.“Moreover, the authorities would besides origin that determination is simply a immense marketplace for lodging loans, assorted investments etc. which suffice for conception 80C payment and not allowing taxation benefits for these whitethorn hamper their marketplace demand.

Hence, the flexibility to opt betwixt the regimes would proceed for immoderate time,” helium adds.On the different hand, Tanu Gupta, Partner astatine Mainstay Tax Advisors LLP finds merit successful ending the aged income taxation authorities to debar confusion.She notes that portion the authorities whitethorn not wholly destruct the aged taxation authorities from the law, it is already moving toward making the caller authorities truthful charismatic that the aged authorities could automatically go redundant. “Although the aged authorities inactive finds a spot successful the recently enacted Income Tax Act 2025, the changes introduced successful past year’s budget—such arsenic tweaking the slabs, raising the Section 87A rebate to Rs 12 lakh, and capping the surcharge astatine 25% for incomes supra Rs 5 crore, portion leaving the aged authorities unchanged—represent a important measurement toward making the caller taxation authorities beneficial for astir taxpayers,” she told TOI.“For FY 2023–24, 72% of taxpayers opted for the caller regime, and this percent is expected to beryllium importantly higher for FY 2025–26,” she adds.Tanu Gupta is of the presumption that 2 income taxation regimes origin confusion, beating the intent of simplification of taxation filing. “Evaluating options by comparing the aged and caller regimes, and for concern income taxpayers being allowed to power lone erstwhile successful a lifetime, lone adds to the confusion, contrary to the taxation argumentation nonsubjective of simplification,” she says.“There person adjacent been instances wherever taxation officers, portion processing returns nether Section 143, inadvertently applied the aged authorities contempt the payer choosing the caller regime, causing inconvenience and further administrative burden.

Therefore, determination is merit successful putting a last extremity to the aged taxation authorities alternatively than letting it slice people by becoming redundant,” she explains.Radhika Viswanathan, Executive Director, Deloitte India sees a gradual stagnation of the aged income taxation regime. This is evident from the information that 1 has to not lone explicitly opt for the aged income taxation regime, it has not seen periodic updates to its slab rates and modular deduction.“The instauration of the Income Tax Act 2025 aims for simplicity. Keeping 2 parallel systems everlastingly contradicts the extremity of simplification. Hence, we whitethorn expect the aged authorities to stay for different 2-3 years to let semipermanent investors (with 15-year PPF accounts oregon longer play location loans) to modulation smoothly. However, it is progressively becoming a bequest enactment unattractive for astir taxpayers,” she tells TOI.Akhil Chandna, Partner and Global People Solutions Leader, Grant Thornton Bharat anticipates a gradual phase-out of the aged authorities implicit time. “Recent fund announcements person consistently enhanced the attractiveness of the caller regime—through higher rebate limits and inclusion of modular deductions—while leaving the aged authorities unchanged. Consequently, the aged taxation authorities is expected to go redundant successful the coming years,” helium says.