Budget 2026: The Future of India's Tax Regimes Hangs in the Balance
As Finance Minister Nirmala Sitharaman tables Budget 2026 today, the spotlight is firmly on the potential fate of India's dual tax regimes. The journey began six years ago with Budget 2020, which introduced a new tax regime offering lower tax rates to taxpayers willing to forego traditional deductions and exemptions. This marked a significant shift in India's tax policy landscape.
From Default to Dominance: The New Regime's Ascent
In Budget 2023, the government made the new tax regime the default option for taxpayers, signaling its long-term vision. Since then, each successive budget has enhanced the appeal of the new regime through reduced income tax rates, while leaving the old regime largely unchanged. This strategic move has gradually nudged taxpayers toward the simplified system.
The transformation reached a pivotal moment in Budget 2025, when the government introduced zero tax liability for individuals earning up to ₹12 lakh under the new regime. This dramatic measure significantly widened its appeal and sparked widespread speculation about the eventual phasing out of the old tax regime.
Expert Opinions: Will Budget 2026 Seal the Deal?
Tax professionals across India are divided on whether Budget 2026 will mark the end of the old tax regime. Some experts believe that while an immediate complete phase-out might not occur, the government could make the old regime increasingly insignificant.
CA Pratibha Goyal, partner at PD Gupta & Company, shares her perspective: "The old tax regime is likely to be phased out soon. If not in this Budget, then certainly over the next two to three Budgets. Even under the new tax regime, I don't expect major additional relief this time, since a significant benefit was already introduced last year in the form of no tax up to ₹12 lakh."
Goyal further explains: "Going forward, most Income-tax-related changes are likely to focus on alignment and transition to the New Income Tax Act, 2025, rather than introducing fresh exemptions or deductions. The emphasis seems to be on simplification, certainty, and smoother implementation, rather than expanding tax benefits."
The Case for Phase-Out: Efficiency and Compliance
CA Manish Golyan, Partner at Gupta Jai & Company, echoes these sentiments while highlighting practical considerations: "It is most likely that the government may partially or wholly remove old regime slabs or deductions, as there are a number of cases of wrongful claims. And the effective tax rate under the new tax regime is lower than that under the old regime, even after deductions (such as Section 80C) and claims (e.g HRA)."
This perspective underscores the government's potential motivation to streamline the tax system, reduce compliance issues, and create a more transparent taxation framework.
A Contrarian View: Both Regimes Might Coexist
Not all experts agree that the phase-out is imminent. Some point to legislative provisions that suggest both regimes might continue to coexist for the foreseeable future.
CA Chirag Chauhan, founder of Mumbai-based CA Chauhan & Company, offers a different take: "I don't believe that the old tax regime would be phased out completely because the new I-T Act mentions both the regimes. However, the new regime could be made even more attractive this time. And then a year later, the government could say that a vast majority (90%) of taxpayers are already opting for the new regime, which could incentivise them to phase out the old regime."
The Road Ahead: Simplification and Transition
As Budget 2026 unfolds, several key factors will influence the government's decision:
- The need for tax system simplification
- Compliance improvement objectives
- Transitional considerations for existing taxpayers
- Alignment with the New Income Tax Act, 2025
- Broader economic policy goals
Whether the old tax regime faces immediate retirement or gradual obsolescence, Budget 2026 represents a critical juncture in India's tax policy evolution. The government's approach will reveal much about its priorities for fiscal management, taxpayer convenience, and economic growth stimulation in the coming years.
