old tax regime scrapped With 80%+ taxpayers now on the new tax regime after Budget 2025’s ₹12 lakh tax-free slab, speculation swirls around Finance Minister Nirmala Sitharaman scrapping the old regime in Union Budget 2026–27. Experts unanimously say no—citing savings disruption, middle-class backlash and administrative hurdles despite high migration (9.19 crore FY25 returns).
Why old tax regime scrapped Stays Despite 80% Shift
Tax advisors highlight five roadblocks to abolition:
1. Backbone Of Household Savings
Sandeep Bhalla (Dhruva Advisors): Sections 80C, 80D, 24(b) drive PPF/EPF, insurance, home loans—India’s savings engine. Abrupt removal “weakens savings rate, jeopardises retirement for millions.”
2. Middle-Class Finances Locked In Tax Products
Sharanya Tripathi (Jotwani Associates): Salaried class structured around 80C/HRA benefits. Withdrawal breaks “psychological discipline link,” spikes perceived burden despite new regime slabs.
3. Dual Stability: Consumption + Savings Balance
Bhalla: New regime boosts spending; old sustains “disciplined savings.” Abrupt single regime risks economic shocks.
4. Legal/Administrative Nightmare
Tripathi: Amending Income Tax Act sections invites litigation from deduction-planned taxpayers. IT Dept handles dual smoothly—why complicate?
5. Government’s Phased “Wither On Vine” Strategy
Gradual nudges (default new regime, rate cuts) working. Multi-year sunset > sudden kill.
Migration Stats: 80% But Not Decisive
| Year | Returns Filed | New Regime % |
|---|---|---|
| FY24 | ~7 Cr | ~75% |
| FY25 | 9.19 Cr | 80%+ (est.) |
| FY26 | ~10 Cr (proj.) | 85–90%? |
High shift, but 20% holdouts (deduction-heavy) wield political weight.
Experts’ Phase-Out Conditions
Bhalla’s roadmap:
- Protect savings sans deductions.
- Grandfather existing loans/insurance.
- Balance consumption-savings.
Tripathi’s thresholds:
- 90–95% migration.
- New regime rebate offsets 80C/HRA.
- Non-tax incentives (higher PPF rates).
- 3–5 year sunset clause.
Budget 2026 Scenarios: What Happens Instead?
Likely moves:
| Action | Impact |
|---|---|
| New regime tweaks | Higher slabs/rebates |
| Old regime nibbles | Shrink 80C limits |
| Default enforcement | Auto new regime for salaried |
| Status quo | Dual continues |
Unlikely: Full old regime scrap—pre-election optics poor.
Taxpayer Strategy: Prepare Regardless
- New regime users (80%): Expect slab expansion.
- Old regime holdouts: Lock deductions via ELSS/home loans now.
- Both: Track Feb 1 Budget for migration incentives.
Old regime survives 2026—phased death over 3–5 years more realistic.
