Government Push Over Last Two Years Signals New Tax Regime as the Future
As Budget 2026 approaches, expectations are rising that the long-standing confusion between the old and new income tax regimes may finally come to an end. Over the past two years, the government has consistently encouraged taxpayers to move away from the old tax regime and adopt the new one. Simpler rules, revised tax slabs, and enhanced exemptions have made the new tax system increasingly attractive, and the shift in taxpayer preference is now clearly visible in official data.
The trend suggests that the new tax regime is no longer just an alternative but is steadily becoming the primary tax framework for individual taxpayers.
Since 2019, the government has been working toward simplifying the income tax system. The old tax regime offered multiple exemptions and deductions, but over time it became complex and difficult for average taxpayers to navigate. Calculating tax liability often required extensive planning, documentation, and professional help.
In contrast, the new tax regime was designed with lower tax rates and a simplified structure. The objective was to make tax compliance easier, reduce dependency on exemptions, and bring more transparency into the system. This approach aimed to benefit salaried individuals, first-time taxpayers, and those who prefer clarity over complicated tax-saving instruments.
The new tax regime was first introduced as an optional system in Budget 2020. However, the major turning point came in Budget 2023, when the government made it the default tax regime. Taxpayers still had the option to choose the old system, but the default status encouraged many to reconsider their choices.
Further, tax slabs were rationalized, surcharge rates were reduced, and compliance requirements were simplified. These changes benefited both middle-income groups and higher-income taxpayers, increasing the appeal of the new system across income brackets.
Budget 2025 played a crucial role in accelerating the shift. Under the new tax regime, income up to ₹12 lakh was made tax-free. For salaried individuals, after accounting for the standard deduction, the tax-free income limit effectively increased to ₹12.75 lakh.
This move significantly reduced the tax burden on the middle class and strengthened the perception that the new tax regime offers meaningful financial relief without complicated conditions.
Government statistics highlight the success of this strategy. In Assessment Year 2024–25, a total of 7.28 crore income tax returns were filed. Out of these, 5.27 crore returns were filed under the new tax regime, accounting for nearly 72 percent of total filings. Only 28 percent of taxpayers opted for the old tax regime.
This data confirms that a large majority of taxpayers now prefer simplicity and lower rates over multiple deductions.
Beyond tax slabs, the government has also focused on improving tax administration. Faceless assessment and faceless appeal systems have been implemented to reduce physical interaction and improve efficiency. Additionally, the government has announced plans to replace the existing Income Tax Act with a new law, expected to come into effect from April 1, 2026.
These reforms aim to modernize tax administration and enhance taxpayer confidence.
Looking at the trends of the past two years, experts believe that Budget 2026 may further strengthen the new tax regime. While major rate cuts may not be announced, the government could consider slab adjustments or additional relief measures.
The government’s consistent messaging suggests that the new tax regime is intended to become the primary tax system in the long run, with the old regime gradually being phased out.
