With just weeks to go before the presentation of Union Budget 2026, expectations are running high among taxpayers across the country. Finance Minister Nirmala Sitharaman is set to present the Union Budget on February 1, marking her ninth consecutive budget. Given the government’s strong focus on tax reforms in recent years, income tax policies are once again expected to remain in the spotlight.

One of the biggest questions ahead of Budget Day is whether the government will make any significant announcement regarding the old income tax regime, which continues to coexist alongside the newer, simplified tax system.

The new income tax regime was first introduced in Union Budget 2020 as an alternative to the traditional system. It offered lower tax rates but removed most exemptions and deductions. Initially, the response from taxpayers was muted, as many individuals preferred the old regime due to benefits such as deductions under Sections 80C, 80D, and 24(b).

However, over the years, the government has consistently introduced changes to make the new regime more attractive and taxpayer-friendly.

Tax experts believe Budget 2026 could bring clarity on the future of the old tax regime. While the government has not indicated any intention to immediately scrap it, the lack of recent updates has raised speculation about whether it may eventually be phased out.

Many analysts believe the Finance Minister may use Budget 2026 to either formally reaffirm the continuation of the old regime or outline a long-term roadmap where the new regime becomes the default option for most taxpayers.

Under the new tax regime, most exemptions and deductions are not available. Individual taxpayers cannot claim benefits under:

• Section 80C (investments like PPF, ELSS, LIC)




• Section 80D (health insurance premiums)




• Section 24(b) (home loan interest)

In exchange, the new regime offers lower tax rates and simplified slabs, making it attractive for individuals who do not rely heavily on tax-saving investments.

The old tax regime, on the other hand, continues to allow these deductions and exemptions, making it suitable for taxpayers with structured financial planning and long-term investments.

To encourage adoption, the government has announced several incentives in recent budgets. In Union Budget 2024, the standard deduction under the new regime was increased from ₹50,000 to ₹75,000 for salaried employees.

Additionally, annual income up to ₹12 lakh was made tax-free under the new regime through rebates. The government also revised tax slabs, increasing the basic exemption limit to ₹4 lakh per year.

These changes significantly reduced tax liability for middle-income earners and simplified compliance.

The impact of these measures is clearly visible in taxpayer data. During Assessment Year 2023–24, nearly 72% of individual taxpayers opted for the new tax regime. Experts now estimate that this figure may have risen to around 80%, indicating a strong shift in taxpayer preference.

This trend suggests that simplicity and lower tax rates are increasingly outweighing the benefits of exemptions and deductions for a large segment of taxpayers.

While the new regime has seen continuous improvements, the old tax regime has remained largely unchanged. Long-standing demands to increase deduction limits under Sections 80C, 80D, and 24(b) have not been addressed so far.

Experts believe this may be a strategic move by the government to gradually reduce dependence on the old system without formally discontinuing it.

Budget 2026 may not necessarily abolish the old tax regime, but it could send a strong signal about the government’s preferred direction. Any announcement—whether symbolic or policy-driven—could influence how taxpayers plan their finances in the coming years.

For now, taxpayers will be closely watching February 1 for clarity on whether the old tax regime will continue as it is or see any meaningful changes.