Budget 2025 Expectations: In Budget 2020, the Modi government announced the introduction of the New Tax Regime, offering taxpayers the option to benefit from lower tax rates under simplified tax slabs, but without deductions and exemptions. Since its launch, there has been ongoing debate and speculation about whether the government should completely scrap the Old Tax Regime or phase it out gradually.
Speculation also surrounds the timeline for the complete removal of the Old Tax Regime, as taxpayers have repeatedly expressed concerns about the complexities arising from having two parallel tax systems. Despite the New Tax Regime being made the default option in Budget 2023, these concerns persist.
With Finance Minister Nirmala Sitharaman gearing up to present her second full-fledged Budget under the Modi 3.0 government on February 1, anticipation is running high. Speculations are rife, and taxpayers are once again demanding the removal of the dual tax regime system in favor of a single tax regime to simplify compliance and reduce complexities for taxpayers.
Also read: Budget 2025: FM to introduce additional tax slab of 25% for annual income of Rs 25-30 lakh?
Complexities around having two tax regimes
Experts too have been highlighting the complexities of the current system and suggesting measures to simplify and rationalise individual taxation.
CA (Dr.) Suresh Surana, a seasoned expert in taxation, said, “Most individual taxpayers, especially salaried individuals, compute their tax liability on their own. Without professional assistance, it becomes difficult for them to assess and choose the most favourable tax regime.”
He also pointed out that a taxpayer earning income from a business or profession who opts out of the new tax regime under Section 115BAC can revert to it only once, making the process less flexible.
Budget 2025 Expectations: Scrapping Old Tax Regime logical step?
Shared his insights on the potential changes in direct taxation in the upcoming Budget 2025 on personal taxation, Vivek Jalan, Partner at Tax Connect Advisory Services LLP, said that scrapping the Old Tax Regime entirely and rationalising income tax slabs under the New Tax Regime is a logical next 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,” he suggested.
“However, the government must also address the impact of inflation, which is approximately 6% per annum, on the value of money. Easing the tax rate in the New Regime could help mitigate this. It is expected that the basic exemption or rebate limit could be extended to ₹9 lakhs, which would put more money into the hands of the middle class.”
For taxpayers earning above Rs 15 lakh, transitioning to the New Regime might result in a financial setback. To address this, the government could introduce a new tax slab for incomes between Rs 15 lakh and Rs 18 lakh, with a tax rate of 25%, Jalan added”. This adjustment would not only provide relief to established taxpayers but also increase disposable income, boost consumption, and, in turn, drive GDP growth.”
CA Anand Bathiya, President at Bombay Chartered Accountants’ Society (BCAS), said, The old tax regime would see a sunset sooner than later. Whether the curtains come down through the budget, or through the proposed simplification overhaul is anyone’s guess, though I would bet my money on the latter.”