Budget 2026: Old Tax Regime Survival Likely, New Regime Deductions Elusive
Overview
Expectations for India's Budget 2026 point to limited direct tax benefits. Experts suggest the old tax regime will likely persist, given 28% taxpayer preference, while new regime deductions remain improbable. Focus may shift to administrative reforms and tax administration efficiency.
Budget 2026: Tax Regime Uncertainty Lingers
Union Budget 2026 is unlikely to deliver sweeping tax benefits or major policy overhauls, according to tax experts. Following significant relief in Budget 2025, the government appears to have limited room for further direct tax concessions. The primary focus is expected to shift towards improving tax administration and compliance efficiency.
Old Regime's Staying Power
The crucial question of whether the old tax regime will survive Budget 2026 looms large. Official data reveals that approximately 28% of taxpayers, totaling 2.01 crore out of 7.28 crore income tax returns filed for AY 2024-25, still opt for the legacy structure. This preference is driven by the ability to claim substantial exemptions and deductions such as House Rent Allowance (HRA), home loan interest, and those under sections 80C, 80D, and 80E. Consequently, experts believe a complete phase-out of the old regime is improbable in the immediate future, suggesting it will coexist with the new regime for some time.
New Regime: Modest Prospects for Deductions
While the government has consistently promoted the new tax regime, the introduction of deductions within it for Budget 2026 appears unlikely. Experts cite the substantial benefits already provided in the previous budget, leaving little scope for further significant tax slab adjustments. Instead, any potential changes might be targeted, possibly offering incentives for property ownership or public market participation, rather than broad-based relief.
Administrative Reforms Take Center Stage
The impending implementation of the New Income Tax Act, 2025, effective April 1, 2026, significantly shapes expectations for the upcoming budget. Presenting substantive direct tax proposals in Budget 2026 would contradict the 'clean slate' objective of the new legislation. Experts, including Dinesh Kanabar, emphasize that India's core tax challenge lies in administration rather than the law's structure. Rationalizing Tax Deducted at Source (TDS) rates, establishing comprehensive dispute resolution frameworks, and easing overall compliance are identified as key opportunities. There is also a call for reintroducing targeted tax incentives for research and development, particularly for sunrise sectors crucial to India's long-term competitiveness.
