As the Union Budget 2026-27 draws closer, uncertainty continues around the future of the old income tax regime. With the government steadily promoting the new tax regime as a simplified and default system, speculation has intensified over whether Finance Minister Nirmala Sitharaman may finally phase out the older structure in the upcoming Budget.
Tax experts, however, believe that a complete withdrawal of the old tax regime in Budget 2026-27 is unlikely.
Old vs New Tax Regime: Existing Structure
Currently, both tax regimes operate in parallel, giving taxpayers the flexibility to choose the option best aligned with their income composition and eligible deductions.
Old Tax Regime
The old regime allows taxpayers to claim multiple exemptions and deductions, including:
- House Rent Allowance (HRA)
- Section 80C deductions up to ₹1.50 lakh
- Home loan interest benefits
- Other allowances and exemptions
For taxpayers with significant deductible expenses, this regime often results in a lower effective tax outgo despite higher slab rates.
New Tax Regime
The new regime offers:
- Lower tax slab rates
- Simplified compliance
- Minimal or no deductions and exemptions
In recent Budgets, the government has positioned the new tax regime as the default option, while still permitting taxpayers to opt for the old regime.
Expert View: Why Scrapping the Old Regime Is Unlikely
Tax professionals point out that the old tax regime continues to serve a large section of salaried and middle-income taxpayers. Deductions such as HRA and Section 80C remain central to personal financial planning, particularly for individuals with housing loans, insurance commitments, and long-term savings instruments.
According to experts, eliminating the old regime abruptly could:
- Increase the effective tax burden on certain taxpayer segments
- Disrupt long-term tax and financial planning
- Undermine policy incentives linked to housing and savings
As a result, experts suggest that the government is unlikely to remove the old regime without a prolonged transition period.
Govt Approach: Gradual Migration to New Regime
From a policy standpoint, the government appears to be pursuing a gradual migration strategy rather than an immediate abolition of the old regime. Over successive Budgets, measures have been introduced to:
- Enhance the attractiveness of the new tax regime
- Expand rebate thresholds
- Simplify compliance and reduce complexity
The continued coexistence of both regimes indicates a calibrated approach, balancing simplification objectives with the need to protect taxpayers who rely on deductions.
Budget 2026-27: Likely Outlook
While incremental changes to the new tax regime, such as adjustments to slabs or rebates, may be announced in Budget 2026-27, most tax experts expect both regimes to continue in the near term.
The old tax regime, with its deduction-based incentives, remains relevant for taxpayers with structured expenses and long-term financial obligations.
Conclusion
Despite widespread speculation, Budget 2026-27 is unlikely to scrap the old income tax regime. Tax experts maintain that deductions like HRA and Section 80C continue to play a critical role in reducing tax liability for a significant section of taxpayers.
Rather than an abrupt removal, the government is expected to continue with a phased and voluntary shift toward the new tax regime, allowing taxpayers the flexibility to choose the system that best suits their financial profile.
Source: News18