Budget 2026: Old Tax Regime Expected to Continue Alongside New System
Tax experts expect Budget 2026 to maintain both old and new tax regimes despite the new system being the default option. While 71-72% of taxpayers use the new regime for its simplicity, 28-29% continue with the old regime to benefit from deductions like HRA and Section 80C investments. The Finance Ministry has repeatedly assured that the old regime will not be abolished, considering millions have made long-term financial commitments based on tax-linked instruments. Experts believe the government will continue encouraging gradual migration to the new regime through incentives rather than forced elimination.
*this image is generated using AI for illustrative purposes only.
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.
| Regime Type: | Usage Rate | Key Features |
|---|---|---|
| New Tax Regime: | 71-72% | Lower slab rates, simpler compliance, fewer exemptions |
| Old Tax Regime: | 28-29% | Higher deductions, tax-linked investments, complex structure |
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.
| Policy Factor: | Impact |
|---|---|
| Long-term Commitments: | Millions invested in tax-linked products |
| Government Assurances: | Repeated promises to maintain choice |
| Transition Management: | Gradual shift without alienating taxpayers |
| Political Considerations: | Offering choice reduces resistance |
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.
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