Budget 2026: Will 2026-27 be the last year of the old tax regime? 72% have already switched, now it's your turn to decide.

Posted on 31st Jan 2026 by rohit kumar

India's direct tax structure is undergoing a major structural shift. The impact of the central government's steps to make the new tax regime the 'default' option and continuously make it more attractive is now clearly visible in the data. According to the latest figures from the Ministry of Finance, nearly 72% of the total income tax returns (ITRs) filed for the financial year 2023-24 (assessment year 2024-25) have opted for the new tax regime. The big question now is whether the financial year 2026-27 will mark the beginning of the end for the old tax regime?

 

 

Understanding the Data: How strong is the shift towards the new regime?

According to Income Tax Department data, more than 7.3 crore income tax returns (ITRs) were filed by September 15, 2025, surpassing the previous year's record of 7.28 crore. Of these, 5.27 crore returns were filed under the new tax regime. This accounts for more than 72% of the total filings. In contrast, only 28% (approximately 2.01 crore) taxpayers chose the old regime. Experts believe that the simplification of tax slabs and the increase in the exemption limit under the new regime have rapidly attracted the middle class.

 

 

What changes were made in the previous year's budget?

The Budget 2025 proposals further strengthened the new tax regime. For the financial year 2025-26 (assessment year 2026-27), the government decided to rationalize the tax slabs under the new regime. Now, individuals with an annual income of up to ₹12 lakh will effectively pay no income tax (due to the increased rebate under Section 87A). Attention will now be focused on the government's decisions regarding this in the upcoming budget. New Tax Regime's Existing Slabs

₹0 to ₹4 lakh: Zero

₹4 lakh to ₹8 lakh: 5%

₹8 lakh to ₹12 lakh: 10%

₹12 lakh to ₹16 lakh: 15%

₹16 lakh to ₹20 lakh: 20%

₹20 lakh to ₹24 lakh: 25%

Above ₹24 lakh: 30%

Old Tax Regime Slabs (for individuals below 60 years of age)

 

 

₹0 to ₹2.5 lakh: Zero

₹2.5 lakh to ₹5 lakh: 5% (Rebate up to ₹12,500 under Section 87A, if income is less than ₹5 lakh)

₹5 lakh to ₹10 lakh: 20%

Above ₹10 lakh: 30% (Note: Standard deduction in the old regime is fixed at ₹50,000.)

 

 

Additionally, in the previous budget, the standard deduction for salaried individuals was increased to ₹75,000, potentially making salaried individuals with income up to ₹12.75 lakh tax-free. All eyes will now be on whether the government makes any changes to this in the budget for the financial year 2026-27.

 

 

The Future of the Old Regime: Is this the final phase?

The old tax regime has seen no changes in its slabs and rates for several years. While the highest tax rate of 30% in the new regime starts after ₹24 lakh, in the old regime, it becomes effective after just ₹10 lakh. Although the government has not yet officially announced a 'sunset date' for phasing out the old regime, the way the new regime has been made the default option and the old regime has been kept unchanged suggests that it may become irrelevant in the coming years.

 

 

Will the road ahead be easier for taxpayers? The fact that 72% of taxpayers have shifted to the new tax regime is proof that people are now prioritizing lower rates and simpler compliance over complex investment-based deductions (80C, 80D). If you are also stuck with the benefits of old investments and deductions, the financial year 2026-27 could be a crucial turning point for you to reconsider your tax planning. It remains to be seen whether Finance Minister Nirmala Sitharaman will further simplify the path for taxpayers in her budget speech.