Budget 2025: Will FM Nirmala Sitharaman phase out the old income tax regime?

With just days to go before the Union Budget 2025 is unveiled on February 1, speculation is mounting over whether Finance Minister Nirmala Sitharaman will bid farewell to the old income tax regime. Analysts believe the government may take this step as more taxpayers transition to the new tax system, which promises simplicity and transparency.

A Shift Towards the New Tax Regime?

Experts point out that the government has been increasingly favoring the new tax regime, which offers lower base tax rates but eliminates most deductions. In contrast, the old regime allowed taxpayers to claim various exemptions, such as under sections 80C and 80D, making it more appealing for those who strategically planned their tax savings.

“Given the government’s preference for the new system and the fact that deductions under the old regime have not been revised since its introduction, there’s a strong possibility that the finance minister may decide to phase out the old tax regime entirely,” says Balwant Jain, a Mumbai-based tax and investment expert.

He further explains that the new system aligns with the government’s goal of making taxpayers report their actual income without relying on multiple deductions.

Could This Be a Historic Overhaul?

Gaurav Kansal, Director of KBP Group, highlights the significant impact this shift could have on India’s taxation framework.

“Currently, the old tax regime still provides a considerable revenue stream through standard deductions. However, if the government decides to streamline tax structures, it may make the new regime mandatory, eliminating traditional exclusions. This would mark a historic simplification of India’s tax architecture,” says Kansal.

Key Differences Between the Old and New Tax Regimes

Under the new tax regime, a tax rebate is available on income up to Rs. 7 lakh, while the old regime provides a rebate up to Rs. 5 lakh.

The standard deduction for salaried individuals is Rs. 75,000 under the new system, compared to Rs. 50,000 under the old regime.

The old tax regime allows multiple deductions and exemptions under sections like 80C, 80D, and HRA, while the new system removes most of these benefits in favor of a simplified tax structure.

What to Expect on February 1?

Despite widespread speculation, the government has not officially indicated whether the old tax regime will be scrapped. Some experts believe the dual tax system may continue, allowing individuals to choose between flexibility and simplicity.

As the Modi 3.0 government prepares for its major announcements, all eyes will be on Sitharaman’s speech on February 1. Parliament’s budget session begins on January 31 and will run until April 4, with the budget presentation scheduled for the second day.