With the Central government making the new and minimal exemptions regime more appealing to taxpayers over the years, many have shifted away from the old regime that provided several exemptions over the years. According to finance ministry data, 72 percent of taxpayers switched to the new tax regime in financial year 2023-24.
Budget 2024 sweetened the deal further in July 2024, when Union finance minister Nirmala Sitharaman rejigged the income tax slabs under the new, minimal exemptions tax regime and increased the standard deduction from Rs 50,000 to Rs 75,000. She also hiked the tax break on employers’ contribution to employees’ National Pension System (NPS) from 10 percent to 14 percent.
In contrast, the tax slabs, rates and standard deduction under the old tax regime were left unchanged.
Was it a prelude to phasing out the old regime?
Unlikely, feel experts. “I do not believe the government will scrap the old tax regime in Budget 2025. For most tax-payers, the new regime will result in lower tax outgo, especially post Budget changes in July 2024. However, a section of tax-payers might still find the old structure to be more beneficial. The government will not tinker with the old regime keeping such tax-payers’ interests in mind,” says Karan Batra, founder of tax consultancy firm Chartered Club.
Also read: Old vs new (simplified): Which income tax regime will help you save more on tax outgo?
For example, tax-payers who claim multiple deductions, in particular, are bound to find the old tax regime more beneficial. For instance, an individual taxpayer with gross salary of Rs 16 lakh will save more under the old tax regime if she is claiming deductions worth at least Rs 4.33 lakh (plus standard deduction of Rs 50,000 under the old regime). However, it’s primarily for those who claim substantial house rent allowance (HRA), which will make tax-savings worthwhile by sticking to the old tax regime.
Some experts believe the old regime might face the axe when the new Income Tax Act is unveiled. Moneycontrol had reported that the proposed revamp is likely to take one more year to be completed.
"Since the government has already announced plans to revamp the Income Tax Act, it is likely that the old tax regime may be phased out for good in the new scheme of things. In the upcoming Budget, the government may make the changes in the new tax regime the way it did last year, to provide relief to the taxpayers and leave the old regime unchanged so that taxpayers automatically find the old regime redundant and move to the new tax regime,” says Kuldip Kumar, Partner, Mainstay Tax Advisors.
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