Speculation ahead of Budget 2026 that the government may phase out the old income tax regime has now been put to rest. With a large majority of taxpayers already opting for the new tax regime, the Centre is not considering any sunset clause for the old system, CBDT Chairman Ravi Agrawal has reportedly said.
In an interview to news agency PTI, Agrawal said nearly 88% of individual taxpayers have shifted to the new tax regime, reflecting strong acceptance of the simplified tax structure introduced by the government. Choosing a tax regime remains a matter of individual choice, he said, but the response to the new regime has been “very good”.
“When ITR-1, 2, 3 and 4 are taken together, about 88% of people have moved to the new tax regime,” Agrawal told PTI, indicating that the government sees no immediate need to force a transition by withdrawing the old option.
Why Budget 2026 avoided scrapping the old regime
Before the Budget, there was widespread expectation that Finance Minister Nirmala Sitharaman might announce a timeline to end the old tax regime, especially with the new Income-tax Act set to come into force from April 1. However, no such move was announced.
The reason appears to lie in the data. Around Budget 2025, nearly 72–75% of taxpayers had already migrated to the new regime. Over the past year, another 13–16% appear to have switched, helped by major relief measures — most notably the move that effectively made income up to ₹12.75 lakh tax-free under the new regime.
Last year, more than a quarter of taxpayers were still sticking with the old regime due to deductions and exemptions. That gap has now narrowed sharply.
Focus shifts to compliance, not slabs
Instead of tweaking tax slabs or rates in Budget 2026, the government chose to focus on compliance simplification and smoother transition to the new law. According to Agrawal, the direct tax proposals announced on February 1 are part of a “continuum” aimed at making tax laws simpler and more taxpayer-friendly.
He said the Central Board of Direct Taxes (CBDT) will soon notify new income tax return forms and rules, along with a detailed set of FAQs, ahead of the rollout of the new law.
“We will be issuing the new income tax forms and rules within February. They will be opened for stakeholder consultation as well before the new Income Tax Act, 2025 gets implemented,” Agrawal told PTI, adding that the transition phase will need clear communication.
FAQs, presentations planned ahead of rollout
Anticipating a surge in queries during the April–June quarter after implementation, the CBDT is also preparing presentations and explanatory FAQs for taxpayers and income tax officials. These, Agrawal said, should help reduce confusion and litigation in the initial months of the new regime.
Budget 2026 also brought several taxpayer-focused measures in the background — including redesigned ITR forms, staggered filing timelines for different categories, and rationalisation of compliance provisions — even as expectations of slab changes were left unmet.
For now, with nearly nine out of ten taxpayers already under the new system, the government appears content to let the old tax regime continue — at least until taxpayer behaviour, not policy compulsion, makes it redundant.