Union Budget 2026: Will Old Tax Regime Be Scrapped As 80 Percent Taxpayers Shift to New System?

Union Budget 2026: With less than three weeks remaining for the Union Budget 2026–27, the spotlight is firmly on tax proposals. The most burning question circulating among taxpayers and financial experts is whether the government will finally scrap the Old Tax Regime entirely or let it fade into irrelevance as the majority of taxpayers migrate to the newer system.

Recent trends and expert opinions suggest that a significant shift in India’s taxation landscape is already underway.

Why the Old Tax Regime is Losing Ground

Over the last few years, the central government has consistently incentivized the New Tax Regime, making it significantly more attractive than its predecessor.
According to reports, the restructuring of slab rates in the new regime has acted as a gentle nudge for taxpayers to switch voluntarily. Data indicates that around 75% of taxpayers had already moved to the new regime previously. Following the latest slab adjustments, which effectively made income up to ₹12 lakh tax-free, experts estimate that over 80% of taxpayers are now opting for the new system.

The surge in tax filings—9.19 crore in FY 2024–25 and an expected 10 crore in FY 2025–26—reflects this mass migration towards a simpler tax structure.

Simplicity Over Deductions: A Policy Choice

The biggest selling point of the New Tax Regime is its simplicity. It eliminates the need for taxpayers to track multiple investments, preserve tedious documentation, or face scrutiny over deduction claims.
This aligns seamlessly with the government’s broader policy of phasing out exemptions to simplify tax laws. For the tax department, fewer deductions translate to less paperwork, faster processing, and a reduced risk of disputes arising from inflated claims.

Why Scrapping the Old Regime May Not Be Immediate

Despite the overwhelming shift, completely scrapping the Old Tax Regime in Budget 2026 might not be straightforward.

• The Savings Ecosystem: India’s household savings are deeply rooted in tax-linked incentives like Provident Funds (PF), Life Insurance, and Home Loans. A sudden removal of these benefits could disrupt long-term financial and retirement planning for millions.
• Psychological Impact: For many salaried individuals, tax-saving investments are a key part of financial discipline. Even if the new regime is mathematically cheaper, the absence of deductions can feel like a financial loss.
• Stability: Retaining a dual system allows the government to balance consumption (encouraged by the new regime) with disciplined savings (supported by the old regime). Abruptly ending the old regime could lead to confusion and transitional challenges.

The Road Ahead: A Gradual Exit

The government’s strategy appears to be one of “nudge, not force.” By making the New Tax Regime the default option and continuously lowering rates, the administration is ensuring a phased transition.
It is widely anticipated that Budget 2026 will not formally ban the Old Tax Regime. Instead, the focus will likely remain on enhancing the appeal of the new system, eventually rendering the old one obsolete for the vast majority of taxpayers. As compliance becomes easier and rates lower, the old regime is expected to shrink in relevance with each passing year.