Budget 2025: Will FM Nirmala Sitharaman bid goodbye to the old income tax regime? All eyes on February 1 announcements | Mint

With just three days to go for the Budget 2025, there are concerns over whether Finance Minister Nirmala Sitharaman will abandon the previous income tax system as the Union Budget 2025 deadline draws near. Many experts speculate that it may soon be eliminated with an increasing number of taxpayers opting for the new tax system and the government’s push for a simplified, transparent approach. Will Budget 2025 end an era for the old tax regime?

“Given the government’s biased stance towards the new tax regime, the growing number of people choosing it, and the fact that the limits for various deductions under the old regime have not been updated since the new system was introduced, don’t be surprised if the finance minister decides to scrap the old tax regime completely,” said Balwant Jain, a Mumbai-based tax and investment expert.

He added that since the government now expects taxpayers to report their actual income, which aligns with the new tax regime, such a move could happen sooner rather than later.

Gaurav Kansal, Director of KBP Group, highlights the potential for significant change in India’s tax system.

Currently, India operates with two distinct tax regimes: the Old Regime, which allows for various deductions, and the New Tax Regime, which offers lower base rates but eliminates those deductions.

“There is a considerable revenue possibility from standard deduction channels for those who enrolled under the Old Regime in AY 2024-25, amounting to 28%. While the New Tax Regime is set to establish new base rates and a streamlined structure. It is possible that by the 2025 budget, we may see a remarkable change, as this could be the era when the government merges the systems. It might constrain the New Tax Regime to a compulsory use system within India, but this will ensure no traditional exclusion benefits will be granted. This would mark a historic simplification of India’s tax architecture,” said Gaurav Kansal.

There has been no official announcement or indication from the government about merging the two.

“The purpose of introducing the new tax regime was to simplify the tax structure and reduce complications, while ensuring that individuals claiming deductions could continue to benefit under the old regime,” said.

He added that it is better to wait for the Union Budget announcement on February 1, as further clarity on this matter may be provided then.

Old income tax regime vs new income tax regime: Key Differences

1)A tax rebate is available on income up to Rs. 7 lakh under the new tax regime and up to ₹5 lakh under the old regime.

2) Under the new rule, the standard deduction for salaried individuals is ₹75,000, while under the previous regime, it was ₹50,000.

3)The majority of deductions and exemptions that were available under different sections, including 80C, 80D, and HRA, and that were exclusive to the previous regime, are often eliminated under the new tax regime.

The major announcements of the Modi 3.0 era will be the focus of all attention on February 1, Saturday. Parliament’s budget session is scheduled to start on January 31 and conclude on April 4. On February 1, the budget will be presented.

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