Budget 2025 Income Tax Expectations Live: Will the government sunset the old tax regime?
“The new tax regime was introduced as an optional tax regime from FY 2020-21 onwards. While the new tax regime disallowed popular exemptions deductions like Section 80C related investments, medical insurance premium, house rent allowance etc. it offered a lower rate of tax with beneficial income slab rates. Ever since the introduction, the finance minister has made various changes in the new tax regime including changing the slab rates to make it more attractive for the taxpayer. For example, the standard deduction from taxable salary has been increased to INR 75,000 from INR 50,000 (as available in the old tax regime). 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 old tax regime. Also, from FY 2023-24 onwards, 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. All of 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 per cent of the taxpayers adopted the new tax regime as at July 2024 reflecting an increasing trend of taxpayers adopting the new tax regime. At the same time there has been negligible or minimum changes to the old tax regime overall.
Having said this, the old tax regime continues to be beneficial for individuals with higher house property rental or other tax saving investments etc.
Hence, 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,” says Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India.