Finance Minister Nirmala Sitharaman is set to present the Union Budget on February 1, 2026. As the date approaches, the primary focus of the salaried class remains on potential changes to the income tax structure. There is significant speculation regarding the future of the Old Tax Regime. Experts believe that Budget 2026 could be the turning point where the government takes decisive. Steps to phase out the old system in favor of a more streamlined New Tax Regime.
The Fundamental Difference: Old vs New Regime
Currently, taxpayers in India have the option to choose between two systems. The Old Tax Regime offers various deductions under sections like 80C (investments up to 1. 5 lakh), 80D (health insurance), HRA, and home loan interest, though it carries higher tax rates, while on the other hand, the New Tax Regime offers lower tax rates but removes most of these exemptions. The government’s objective behind the new system is to simplify the tax code and eliminate the need for complex documentation and investment proofs.
Is the Sunset of the Old Tax Regime Imminent?
Pre-budget surveys and economic analysts suggest that maintaining two parallel tax systems isn't a long-term goal for the government. Having two systems creates confusion among taxpayers and increases administrative overhead. Instead of an abrupt termination, the government is likely to make the Old Tax Regime 'irrelevant' by enhancing the benefits of the New Tax Regime. By increasing the basic exemption limit and offering more attractive standard deductions, the government aims to make the new system the default and most beneficial choice for the majority.
Rising Adoption of the New Tax Regime
According to data from EY India, approximately 72% of taxpayers. Opted for the New Tax Regime in the assessment year 2024-25. This significant shift indicates that the government's efforts to popularize the new system are working. In previous budgets, the inclusion of a standard deduction and the rebate under Section 87A made income up to nearly 12. 75 lakh effectively tax-free for salaried individuals under the new system. Budget 2026 is expected to push these boundaries further to attract the remaining middle-class taxpayers.
Impact on Savings and Investment Habits
One of the main criticisms of phasing out the Old Tax Regime is its impact on forced savings. The old system incentivized people to invest in instruments like PPF, LIC, and ELSS to save tax. Without these incentives, there are concerns that household savings might decline. However, the government argues that providing more disposable income allows individuals to make investment choices based on financial goals rather than tax-saving compulsions. It remains to be seen if Budget 2026 will introduce any specific investment-linked benefits within the new framework.
Expert Outlook for Budget 2026
Most tax consultants believe that while the Old Tax Regime might not be scrapped instantly, a 'sunset clause' could be introduced. This would provide a clear timeline for when the old system will cease to exist, allowing those with long-term financial commitments like home loans to transition smoothly. For now, the message from the Finance Ministry seems clear: the future of. Indian taxation is a simplified, exemption-free regime that offers lower rates to all.