Budget 2026 may not scrap the old tax regime, but the government is likely to sweeten the new one further, a quiet but clear nudge in policy direction, says CA Dr Suresh Surana.
As Budget 2026 approaches, the Centre is expected to double down on its push toward the new personal income-tax regime without formally retiring the old one. Surana told NDTV that while a full phase-out of the old tax regime isn't on the table, the government is likely to steer taxpayers toward the new structure through additional incentives.
"Rather than enforcing a sudden shift, the government is expected to continue nudging taxpayers towards the new regime by incentivising it further," Surana said. These nudges may include raising the standard deduction, introducing optional joint filing for married couples, and selectively restoring limited deductions for essentials like medical expenses or disability care.
A major point of differentiation is already visible in the standard deduction: while the old regime has stayed fixed at Rs 50,000, the new regime received a hike to Rs 75,000 in Budget 2025. This increase has made the new regime especially attractive to salaried individuals, with income up to Rs 12.75 lakh now effectively tax-free when the deduction is factored in.
Tax experts believe any further rise in the standard deduction would apply only under the new regime, reinforcing the policy shift.
They say rising inflation and higher day-to-day expenses have reduced the disposable income of salaried households, adding that a further increase in the standard deduction would help employees manage these rising costs.
Government data shows this strategy is already working. For FY 2023-24, 72% of taxpayers, around 5.27 crore, chose the new tax regime. The figure is expected to climb further in AY 2025-26, as slab rationalisations and rebates continue to benefit middle-income earners.
Yet nearly 2 crore taxpayers, 28%, still remain with the old regime, largely due to the deductions it offers. These include exemptions for House Rent Allowance, health insurance, home loan interest, and education loans.
