New Income Tax Regime Gains Popularity Ahead of Budget 2026
Rising Preference for the New Tax Regime
In New Delhi, the new income tax regime has become the default and preferred choice among taxpayers. Following significant changes in the tax slabs and an increase in the basic exemption limit to ₹4 lakh in the 2025 budget, along with enhanced rebates under Section 87A, this system has proven to be more beneficial for many. Currently, a majority of taxpayers filing income tax returns are opting for this regime, with all eyes on the Union Budget 2026, set to be presented on February 1, 2026, to see if it will be made even more appealing.
Statistics Reflecting the Shift
According to data, out of 7.28 crore income tax returns filed for the assessment year 2024-25, approximately 72% (5.27 crore) were under the new regime, while only 28% opted for the old system. Following the changes introduced in the 2025 budget, this number is expected to rise further, as income up to ₹12 lakh (including standard deduction) is effectively tax-free. Tax experts attribute the growing popularity of the new regime to its simplicity, lower rates, and reduced compliance requirements.
Expectations for Budget 2026
Tax specialists and reports suggest that Budget 2026 may signal further strengthening of the new tax regime, although significant changes to the slabs or new exemptions are unlikely. Major reforms were implemented last year, and the new Income Tax Act 2025, effective from April 1, 2026, focuses on simplification. Key expectations include:
Key Expectations from Budget 2026
- Future of the Old Regime: Many experts believe the government may gradually phase out the old regime. Some suggest it could be completely discontinued within 2-3 years, as the new regime is the default choice for most taxpayers. However, deductions for home loans and health insurance will not be eliminated immediately.
- Limited Deductions in the New Regime: Some experts propose adding essential deductions like health insurance (Section 80D) or home loan interest to the new regime to enhance its attractiveness, though major changes are not anticipated.
- Increase in Standard Deduction: There is a possibility of raising the standard deduction for salaried individuals from ₹75,000 to ₹1 lakh to account for inflation.
- Simplification of TDS: There are calls to limit TDS rates to 2-3 slabs to ease compliance.
- Other Fine-Tuning Measures: Adjustments may include raising the interest TDS threshold for senior citizens or changes related to electric vehicle provisions.
Insights from Tax Experts
- Preeti Sharma from BDO India: No major changes are expected in the new regime, as significant relief was provided in the previous budget.
- Surabhi Marwah from EY India: The government's focus is on simplification, and there is no need for major reforms.
- Deloitte India: The old regime will gradually become irrelevant.