Budget 2025 new vs old income tax regime: Will FM Sitharaman do away with the old regime soon? Experts weigh in

Budget 2025 income tax expectations: Ever since Finance Minister Nirmala Sitharaman introduced the new income tax regime with reduced tax rates and almost no deductions and exemptions, salaried taxpayers have been wondering whether the old income tax regime will eventually be phased out.

The new income tax regime was introduced as an optional tax regime FY 2020-21 onwards. Under the new income tax regime, common and popular exemptions like Section 80C, medical insurance premium, house rent allowance etc. are not included. What it offers is a tax regime with lower tax rates, beneficial income tax slabs and no headache of compliance burden related to deductions and exemptions.

Ever since the introduction, the Narendra Modi governments have made various changes in the new tax regime including changing the income tax slab rates to make it more attractive for the taxpayer. For example, the standard deduction from taxable salary was increased to Rs 75,000 from Rs 50,000 (as available in the old tax regime) in Budget 2024.


Also Read | Budget 2025 income tax: From higher tax exemption limit to increased standard deduction - top 6 expectations of common man

Further, the employer’s contribution to the NPS is allowed as deduction up to 14% of specified salary as compared to 10% of salary in the old tax regime.

Most personal tax experts are of the view that the government will phase out the old income tax regime in the coming years. However, they are divided on how soon, with tax experts suggesting that the old tax regime will likely be available as an option for salaried taxpayers for some more years.

New vs Old Tax Regime: Latest Income Tax Slabs & Rates

Important points to note:

• Rebate eligibility under new income tax regime is Rs 7 lakh
• Taxpayers can avail rebate up to Rs 25,000/-

The below income tax slabs and rates are applicable for financial year 2024-25 for residents below 60 years of age.

• Resident individual taxpayers with a total income not exceeding Rs 500,000 are eligible for a tax rebate of Rs 12,500 or the actual tax payable, whichever is lower.
• For senior citizens the basic exemption limit is Rs 3 lakh; for super senior citizens above 80 years it is Rs 5 lakh

Apart from the taxes calculated according to the slabs mentioned above, a surcharge will be levied on the income-tax of individuals if their total income exceeds Rs 5,000,000.

New vs Old Tax Regime: Will Old Regime Be Phased Out Soon?

From FY 2023-24, the new tax regime which was optional earlier, was made the default tax regime unless the taxpayer expressly opted out of the same and selected the old tax regime.

“This has resulted in the increase in the number of taxpayers adopting the new tax regime. As per the Central Board of Direct Taxes for FY 2023-25 approximately 72% of the taxpayers adopted the new tax regime as at July 2024 reflecting an increasing trend of taxpayers adopting the new tax regime,” says Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India.

"If the government does consider bringing an end/ sunset to the old tax regime, they may adopt a gradual phased out approach and provide a roadmap of the same in the current Budget scheduled to be presented on 1 Feb 2025,” she tells TOI.

Also Read | Budget 2025 income tax: Top tax reliefs FM Sitharaman should consider in Union Budget

Surabhi Marwah, Tax Partner, EY India says, “It seems unlikely that the government will completely phase out the old tax regime in the upcoming Budget. While the new tax regime has gained popularity due to its simplicity, the old regime still offers advantages to taxpayers with claims for higher exemptions and deductions.”

“The government may continue to focus on encouraging the adoption of the new tax regime, possibly by making it more attractive, while maintaining both regimes for a transition period,” she told TOI.

Kuldip Kumar - Partner - Mainstay Tax Advisors LLP says that the old tax regime is likely to be phased out, and this may happen through the new tax code. “The Finance Minister announced in her budget speech last year, to revamp the existing Income Tax Act,” he explains.

“Alternatively, the government may make changes to the new tax regime only to provide relief to taxpayers, leaving the old regime unchanged as it did in last year's budget. This would automatically render the old regime redundant until the simplified tax code is brought into effect,” he told TOI.

Aarti Raote, Partner, Deloitte India feels that with a hike in standard deduction and NPS benefits under the new tax regime, more people will adopt it. Given these reasons, the government is likely to phase out the old regime in the coming years, she says.

Sundeep Agarwal, Partner, Vialto Partners says, “While the old income tax regime benefits those using deductions, its phase-out under current tax laws seems unlikely. However, with the proposed Direct Tax Code (DTC) aiming to streamline taxation and reduce complexities, dual tax structure may eventually be replaced by a single, uniform regime under the DTC.”

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