Will Union Budget 2025 see the end of the old income tax regime?

Is the end of the old income tax regime nigh?

With Finance Minister Nirmala Sitharaman set to present the Union Budget on 1 February, rumours of a cut in income tax rates are doing the rounds.

Some are also wondering if the old income tax regime will be scrapped.

But what do we know? Will the Union Budget 2025 witness the end of the old tax regime?

Let’s take a closer look:

What do we know?

The Prime Minister Narendra Modi government had introduced the new tax regime in 2020.

As per The Times of India, the new regime has slightly reduced tax rates compared to the old regime.

Which is perhaps why it become overwhelmingly popular since it was introduced despite almost having no exemptions and deductions.

According to the Ministry of Finance, more than 70 per cent of taxpayers opted to file their ITR under the new regime for the FY 2023-24.

According to The Times of India, the new tax regime in the last financial year was made the default choice for taxpayers.

Taxpayers who wished to file under the old regime had to choose to do so.

On the other hand, under the old tax regime, citizens can claim deductions under several slabs.

This includes the popular 80C under which you can reduce your taxable income up to Rs 1.5 lakh.

Deductions can also be claimed under Section 80TTA/80TTB (interest from savings account deposits), interest paid on home loan for self-occupied or vacant property, for HRA, LTA and 80D.

Santhosh Sivaraj, Partner, Global Employer Services, Tax & Regulatory Services, BDO India, told MSN that the old tax regime is better for those earning a hefty paycheque.

Sitharman in July 2024 had declined to say if there would be a ‘sunset clause’ when it comes to the old tax regime.

“The government’s intention is to make the income tax regime simpler. Cannot say whether there will be a sunset clause on the old income tax regime. Decision after a review,” Sitharaman was quoted as saying by Hindu Business Line.

What do experts say?

Experts seem divided.

Some say the government should let citizens rely on the old tax regime for some time.

Aditi Goyal, tax partner, Trilegal, told MSN “…it is hoped that the old regime will be allowed to continue for at least some more time, given that several taxpayers continue to rely on the deductions provided in the old regime. Maintaining two regimes allows taxpayers the flexibility to make an informed decision considering their income levels, investments and personal situation."

Surabhi Marwah, Tax Partner, EY told The Times of India, “It seems unlikely that the government will completely phase out the old tax regime in the upcoming Budget . While the new tax regime has gained popularity due to its simplicity, the old regime still offers advantages to taxpayers with claims for higher exemptions and deductions.”

“The government may continue to focus on encouraging the adoption of the new tax regime, possibly by making it more attractive, while maintaining both regimes for a transition period,” she added.

Others think the old regime has had its day.

Vivek Jalan, Partner at Tax Connect Advisory Services LLP, told Financial Express doing away with the old tax regime is simply the next logical step.

“Today, under the New Tax Regime, income tax has become much simpler. With an exemption limit of Rs 7 lakhs, taxpayers pay zero tax at the same income level where they were previously taxed. As the Income Tax Act undergoes a comprehensive review on February 1, 2025, the government should consider making the New Regime the sole tax system,” Jalan said.

Akhil Chandna, Partner, Grant Thornton Bharat, told MSN, “…the old tax regime is still crucial for taxpayers who have significant investments in tax savings instruments such as life insurance, PPF, ELSS and house property. It is expected that the government is unlikely to make changes to the old tax regime but may continue simplifying the new tax regime. As Budget 2025 approaches, simplification of the new tax regime and tweaking the slab structure of tax rates will automatically push more taxpayers to opt for it, which would eventually abolish the old tax regime."

With inputs from agencies