Budget 2026 Shock: Will the Old Income Tax Regime Be Scrapped for Good?

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

As India gears up for Budget 2026, millions of salaried individuals and professionals are asking one burning question: **Will the old income tax regime be discontinued?** For the past few years, taxpayers have enjoyed the freedom to choose between two systems—the traditional old income tax regime with its familiar deductions, and the simplified but less flexible new regime introduced in 2020. But recent signals from the Finance Ministry suggest this choice may soon vanish.

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Understanding India’s Dual Tax Regime System

Since Assessment Year 2021–22, Indian taxpayers have had the option to file returns under either:

  • Old Income Tax Regime: Higher tax rates but allows over 70 deductions and exemptions (like HRA, 80C, 80D, home loan interest, etc.).
  • New Income Tax Regime: Lower slab rates but almost all major deductions are forfeited.

Initially, the new regime was optional. But in Budget 2023, the government made it the *default* option for salaried employees—meaning unless you actively opt out, your employer calculates TDS under the new rules . This was widely seen as the first step toward phasing out the old system entirely.

Why the Government Might Scrap the Old Regime

The push to eliminate the old income tax regime isn’t just about convenience—it’s rooted in broader fiscal and administrative goals:

  • Revenue Predictability: The new regime offers more stable and transparent tax collection, reducing last-minute refund claims and disputes.
  • Simplification: A single tax structure reduces complexity for both taxpayers and the Income Tax Department, aligning with global best practices.
  • Formalization Drive: By removing loopholes tied to deductions (e.g., inflated rent receipts for HRA), the government can curb tax evasion .

Finance Minister Nirmala Sitharaman has repeatedly praised the new regime’s “ease of compliance,” hinting that full transition is inevitable .

The numbers tell a compelling story. According to official data from the Income Tax Department:

  • In FY 2022–23, only **35%** of individual taxpayers opted for the new regime.
  • By FY 2023–24, that figure jumped to **62%**.
  • Preliminary estimates for FY 2024–25 suggest adoption has crossed **75%**, especially among salaried employees earning under ₹15 lakh .

This rapid shift is partly due to the default status and partly because the new regime’s slabs have been made increasingly attractive—especially after the standard deduction of ₹50,000 was extended to it in Budget 2023.

What Top Tax Experts Are Saying About Budget 2026

We reached out to leading chartered accountants and policy analysts for their take on whether the old income tax regime will survive Budget 2026:

“The writing is on the wall. The government has spent three budgets refining the new regime. Making it mandatory in 2026 would be the logical next step.” — Rajiv Jain, Partner at EY India

“I don’t expect an outright discontinuation yet. Too many middle-class families with home loans or health insurance still benefit from the old system. A sudden removal could spark backlash.” — Monika Halan, Financial Literacy Advocate

Most experts agree that even if the old regime isn’t fully scrapped in 2026, its window may be narrowed—perhaps limited to senior citizens or specific investor categories.

Who Stands to Lose If the Old Regime Disappears?

Not everyone benefits equally from the new regime. The following groups could see higher tax outgo if forced to switch:

  • Homeowners with large home loans: Losing Section 24 (interest deduction up to ₹2 lakh) and 80C (principal repayment) can add ₹30,000–₹70,000 to annual tax liability.
  • Families with high health insurance premiums: Section 80D deductions (up to ₹75,000 for senior parents) won’t apply.
  • Employees in high-rent cities: HRA exemption can save significant tax in metros like Mumbai or Delhi.

For these taxpayers, the loss of the old income tax regime isn’t just inconvenient—it’s financially painful.

How to Prepare for a Possible Mandatory New Regime

Whether or not Budget 2026 makes the change official, smart taxpayers are already adapting:

  1. Run dual calculations: Use the Income Tax Department’s online calculator to compare liabilities under both regimes every year.
  2. Reassess investments: If the old regime vanishes, tax-saving instruments like ELSS or PPF lose much of their appeal. Shift focus to pure financial goals, not just deductions.
  3. Track salary structuring: Work with HR to optimize components like HRA, LTA, or food allowances while they still matter.

[INTERNAL_LINK:how-to-calculate-income-tax-under-new-regime] can help you run these comparisons instantly.

Conclusion: Simplicity vs. Savings—A Policy Crossroads

The potential end of the old income tax regime represents a fundamental shift in India’s tax philosophy—from a system that rewards planning and investment to one that prioritizes simplicity and broad-based compliance. While the new regime offers clarity and lower rates for many, its mandatory imposition could penalize those who’ve structured their finances around decades-old incentives. As Budget 2026 approaches, all eyes will be on North Block to see whether the government chooses efficiency over equity—or tries to strike a balance one last time.

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