Old Tax vs New Tax Regime Budget 2026 is emerging as one of the most debated topics among India’s salaried taxpayers as the Union Budget approaches. With rising inflation, higher living costs, and shrinking disposable income, employees are keenly watching whether Budget 2026 will finally tilt the balance decisively in favour of the new tax regime or continue allowing a parallel choice.
At present, nearly 72% of taxpayers have shifted to the new tax regime, while around 28%—close to 2 crore individuals—still prefer the old tax regime mainly due to the deductions and exemptions it offers. Budget 2026 is expected to build on this trend through strategic incentives rather than a forced transition.
Why Old Tax vs New Tax Regime Budget 2026 Matters
The debate around Old Tax vs New Tax Regime Budget 2026 matters because it directly impacts take-home salary, tax planning, and long-term financial decisions for India’s middle class. While the old tax regime allows popular deductions such as House Rent Allowance (HRA), Section 80C investments, home loan interest, and health insurance premiums, the new tax regime offers lower tax rates with fewer compliance requirements.
The government’s policy direction clearly indicates a preference for simplicity, predictability, and lower litigation—principles that align closely with the new tax regime.
New Tax Regime: The Government’s Preferred Choice
Under the new tax regime, tax slabs are simpler, and compliance is easier. A major boost came in Budget 2025, when the standard deduction under the new tax regime was increased to ₹75,000, while the old tax regime remained capped at ₹50,000. This change alone made income up to ₹12.75 lakh effectively tax-free for many salaried individuals.
Experts believe that Budget 2026 income tax changes may further enhance the new regime by:
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Increasing the standard deduction again
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Rationalising tax slabs
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Introducing limited, targeted deductions for essentials such as medical expenses or disability care
Such measures would make the Old Tax vs New Tax Regime Budget 2026 comparison increasingly one-sided in favour of the new structure.
Why Some Taxpayers Still Prefer the Old Tax Regime
Despite policy nudges, a significant section of salaried taxpayers continues to favour the old tax regime. The primary reason is flexibility. The old regime rewards structured financial planning through deductions such as:
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HRA for renters
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Home loan interest under Section 24
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Health insurance premiums under Section 80D
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Education loan interest
For taxpayers with higher deductions, the old regime can still result in lower tax outgo. This is why Budget 2026 is unlikely to scrap the old tax regime outright, but rather allow it to fade gradually through reduced incentives.
What Budget 2026 May Change
From an Old Tax vs New Tax Regime Budget 2026 perspective, the government is expected to continue its “soft push” strategy. Instead of eliminating the old regime, Budget 2026 may:
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Sweeten the new tax regime further
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Keep the old regime unchanged or less attractive
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Encourage automatic adoption of the new regime for first-time taxpayers
Government data already supports this direction, with over 5.27 crore taxpayers choosing the new tax regime in FY 2023–24, a figure likely to rise further in AY 2026–27.
Impact on Salaried Class
For salaried individuals, Old Tax vs New Tax Regime Budget 2026 will largely depend on income structure. Those without major deductions may benefit more from the new regime, while taxpayers with home loans or significant exemptions may still prefer the old regime—at least in the short term.
However, inflation-adjusted relief, higher standard deductions, and slab rationalisation could soon narrow this gap.
The message from Old Tax vs New Tax Regime Budget 2026 discussions is clear: the government is steering taxpayers toward a simpler, low-compliance system without abrupt disruption. Budget 2026 is expected to reinforce this transition, making the new tax regime more attractive while keeping the old regime alive—but less relevant.
For salaried taxpayers, now is the right time to reassess long-term tax planning strategies in light of upcoming income tax reforms.
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