New Income Tax Regime Sees Massive Adoption with 88% Individual Taxpayers Switching
In a significant development for India's taxation landscape, the Central Board of Direct Taxes (CBDT) Chairman Ravi Agrawal has revealed that approximately 88 per cent of individual taxpayers have now migrated to the new income tax regime. During a post-Budget interaction with PTI, Agrawal clarified that the government is not considering any sunset clause for the old tax regime, ensuring taxpayers retain their choice between systems.
Widespread Shift Across Taxpayer Categories
The transition to the simplified tax structure has gained remarkable momentum across different taxpayer segments. Agrawal explained that when considering ITR 1, 2, 3, and 4 forms collectively, which are used by individual taxpayers, about 88 per cent have moved to the new regime. The migration is even more pronounced among presumptive tax cases, where approximately 97 per cent of taxpayers have adopted the new system.
For corporate entities, the shift is also substantial, with about 60 per cent of corporate income now being reported under the new tax regime. Agrawal described this widespread adoption as "very good" progress, highlighting how taxpayers are embracing the simplified approach.
Budget Measures to Further Accelerate Migration
The CBDT chief indicated that policy changes announced in the FY27 Budget could potentially accelerate the migration to the new tax regime even further. Particularly significant are the modifications related to Minimum Alternate Tax (MAT), which applies to companies when their book profits exceed normal tax liability.
Under the Budget proposals, MAT would be treated as final tax, with the rate reduced to 14 per cent from 15 per cent for companies continuing under the old regime. This adjustment creates additional incentives for corporate taxpayers to consider transitioning to the new system.
Securities Transaction Tax Adjustments
Agrawal also addressed the proposed increase in Securities Transaction Tax (STT), explaining that this measure aims to moderate aggressive derivatives trading activity among retail participants. "Only time would tell how much it would curb, but this is an attempt from the department and the government to actually at least address this issue and flag this issue," he stated.
The Budget 2026-27 proposals include:
- Increasing STT on futures contracts to 0.05 per cent from 0.02 per cent
- Raising STT on options premium to 0.15 per cent from 0.1 per cent
- Increasing STT on options exercise to 0.15 per cent from 0.125 per cent
Confidence in Tax Collection Targets
Despite these structural changes, Agrawal expressed confidence that the revised direct tax collection target of Rs 24.21 lakh crore for FY26 will be achieved. This optimism reflects the underlying strength of India's tax administration system and the positive response from taxpayers to recent reforms.
Understanding the Two Tax Regimes
The old tax regime refers to the pre-2020 income tax structure that allows multiple deductions and exemptions but carries higher tax rates. In contrast, the new regime offers:
- Lower tax rates with fewer exemptions
- Full exemption for individuals earning up to Rs 15 lakh annually
- Simplified compliance requirements
- Greater transparency in tax calculations
The continued availability of both regimes ensures taxpayers can choose the option that best suits their financial circumstances, while the overwhelming preference for the new system indicates its alignment with contemporary taxpayer needs and preferences.
