As Budget 2026 approaches, speculation continues around whether the government will finally eliminate the old tax regime. Despite the new tax regime becoming the default option and successive budgets making it increasingly attractive, a significant portion of taxpayers continues to rely on the old system for substantial tax savings.

Current Usage Patterns

Despite the government's push toward the new tax regime, adoption remains split among taxpayers. According to Nitin Bajal, Executive Director at Deloitte India, approximately 28-29% of taxpayers still utilize the old regime effectively.

The old tax regime remains particularly relevant for taxpayers who actively utilize various deductions and exemptions. These include House Rent Allowance (HRA), Section 80C investments, health insurance premiums under Section 80D, education loans, and home loan interest benefits. For higher-income salaried individuals with structured compensation packages, these deductions can materially reduce tax liability in ways the new regime does not accommodate.

Expert Predictions for Budget 2026

Tax experts anticipate that Budget 2026 will maintain the coexistence of both regimes rather than eliminating the old system entirely. Neeraj Agarwala, Partner at Nangia & Co LLP, emphasizes the government's consistent messaging on this matter.

"Based on repeated statements and clarifications from the Finance Ministry, there has been a consistent assurance that the old tax regime will not be abolished," Agarwala explains. "In line with these assurances, it is reasonable to expect that the option to continue under the old tax regime will remain available for individuals who prefer it."

Policy Considerations and Long-term Impact

From a policy perspective, completely scrapping the old regime presents significant challenges. The Indian tax system has historically encouraged household savings through tax-linked instruments including provident funds, insurance products, and housing investments. A sudden elimination of the old regime could disrupt long-term financial planning for millions of taxpayers who have committed to these products based on stable tax assumptions.

Sudhakar Sethuraman, Partner at Deloitte India, reinforces this perspective: "The old tax regime and new tax regime will continue to be available and the government may not phase out the old regime. We will have to wait for policy change and a clear signal for forecasting the scrapping of the old regime."

Government Strategy Moving Forward

While maintaining both systems, the government's intent to gradually encourage migration to the new regime remains clear. By establishing the new regime as the default option, expanding standard deductions, and improving slab structures, the incentive for voluntary transition has increased substantially.

This approach allows the government to manage the transition to a simpler tax system without disrupting existing taxpayer commitments. From both political and administrative perspectives, offering choice reduces resistance while building trust among taxpayers who are midway through long-term financial planning.

Outlook for Taxpayers

The consensus among tax professionals suggests that Budget 2026 will reinforce the government's preference for simplicity and compliance while maintaining the dual-regime structure. Rather than forcing a decisive break, the strategy appears focused on natural migration over time as the new regime's benefits become more apparent to individual taxpayers.

For taxpayers, this means the importance of carefully evaluating both regimes based on individual financial circumstances continues. The choice between regimes, at least for the foreseeable future, appears likely to remain available as the government balances policy objectives with practical implementation considerations.

Tax policy experts have presented comprehensive recommendations for Budget 2026 to enhance India's mergers and acquisitions environment, particularly with the Income-tax Act, 2025 scheduled for implementation from April 1, 2026. The suggestions aim to address existing regulatory gaps and improve the ease of doing business for M&A transactions.

Fast-Track Demerger Tax Neutrality

A primary recommendation involves extending tax neutrality to fast-track demergers under Section 233 of the Companies Act, 2013. Currently, the Income-tax Act, 2025 provides tax neutrality only to NCLT-approved demergers under Sections 230 to 232, excluding fast-track demergers that enable small or closely held companies to undertake demergers without court approval.

The finance ministry's rationale for excluding fast-track demergers centers on concerns about potential valuation manipulation without court oversight. However, experts argue this approach contradicts the ease of doing business agenda, forcing genuine taxpayers to choose between transaction efficiency and tax benefits.

Contingent Consideration Clarity

Experts emphasize the need for clear taxation guidelines on earn-out, profit-linked, or contingent consideration arrangements that have become increasingly common in M&A transactions. These arrangements tie part of the sale consideration to achieving specific profitability or financial milestones.

The current legal framework lacks clarity on:

• Taxability of contingent payments
• Timing of taxation for such arrangements
• Treatment of milestone-based considerations

Foreign Company Merger Anomalies

The recommendations address existing inconsistencies in foreign company merger taxation. While foreign companies enjoy capital gains tax exemptions on direct or indirect share transfers during mergers with other foreign companies, shareholders of the amalgamating company face potential capital gains liability on share swaps.

This creates an anomaly compared to domestic mergers, which provide exemptions at both company and shareholder levels.

Capital Gains Tax Rate Concerns

The recent capital gains tax regime rationalization introduced higher long-term capital gains tax rates, which experts suggest adversely impacts investor returns and exit efficiency. The increased rates potentially drive investors toward jurisdictions with more favorable tax regimes.

Key concerns include:

• Reduced post-tax returns for investors
• Decreased competitiveness with other investment destinations
• Impact on foreign capital attraction

Experts recommend reducing capital gains tax rates, suggesting restoration of the earlier 10.00% rate to improve India's competitive position in attracting foreign investment.

Strategic Implementation Timeline

With the Income-tax Act, 2025 set for April 1, 2026 implementation, Budget 2026 represents the final opportunity to incorporate these amendments before the new framework takes effect. The recommendations aim to position India as a preferred destination for cross-border M&A activities while maintaining regulatory integrity and supporting corporate growth objectives.