Budget 2026: Old Tax Regime may Stay as Parallel Option, No Immediate Phase-Out Expected
Experts predict that the government will continue the push for adoption of new tax regime, while retaining the old tax regime as an alternative option for taxpayers
As India’s Union Budget 2026 approaches, there is once again spotlight on future of the old income tax regime. This is especially because the new tax regime unveiled in Budget 2020 is now the default option. Despite speculation by tax professionals and industry experts, there are strong indications that the old tax regime will not be done away with. It will continue to coexist with the new, simpler structure.
The new tax regime was introduced under Section 115BAC with an aim to simplify personal income taxation and make compliance easier for individual taxpayers. It offers lower slab rates with minimal exemptions and deductions. In promotion its adoption, government introduced benefits such as:
- Basic exemption limits have been raised and the tax rebate under Section 87A was expanded to make annual income up to ₹12 lakh tax-free
- Salaried individuals benefited from a higher standard deduction of ₹75,000, which brought the effective tax-free threshold to ₹12.75 lakh
Despite the clear push towards new tax regime, the old tax regime remains relevant for a significant number of taxpayers. According to industry estimates, roughly 28-29% taxpayers continue to choose the old regime. It allows taxpayers to claim exemptions and deductions such as:
- House Rent Allowance
- Section 80C investments
- Health insurance premiums under Section 80D
- Home loan interest
Experts suggest that the government will continue to promote the new tax regime. However, it is unlikely to abolish the old regime immediately. Retaining both options will create a balance and enable taxpayers to evaluate which system best suits their needs and make choices accordingly.
As Finance Minister Nirmala Sitharaman prepares to present the Budget on February 1, 2026, all takeholders will be watching closely not only for changes in income tax slabs and rebates, but also for any signals on the future of India’s dual tax regime system.
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