Budget 2025: Is the old tax regime on its way out as Sitharaman pushes new tax law? 

As Finance Minister Nirmala Sitharaman presented the Union Budget 2025, speculation resurfaced about the potential phase-out of the old tax regime. Presenting the Budget, Sitharaman today said that a new income tax legislation will be introduced by the government next week in the ongoing session of Parliament.

The government’s move to propose a new income tax law has reignited discussions, especially since no relief was announced for taxpayers under the old regime, while the new regime saw significant revisions.

The old tax regime, which allows deductions up to ₹1.5 lakh for investments in schemes like PPF, NSC, and SSY, has long been a preferred choice for individuals maximizing tax savings through exemptions and deductions. Introduced in 2020, the new tax regime offered concessional rates but without these deductions. By 2023, it had become the default option, although taxpayers could still opt for the old regime if it resulted in a lower tax liability.

During her Budget speech, Sitharaman announced, “No Income Tax payable up to an income of ₹12 lakh.” She outlined the revised tax structure under the new regime:  ₹0–4 lakh: Nil, ₹4–8 lakh: 5%, ₹8–12 lakh: 10%, ₹12–16 lakh: 15%, ₹16–20 lakh: 20%, ₹20–24 lakh: 25%, Above ₹24 lakh: 30%.   

“For taxpayers with income up to ₹12 lakh, excluding special rate income like capital gains, a rebate is provided, ensuring no tax payable,” she added. This marks a significant shift, focusing tax relief exclusively on the new regime while leaving the old system untouched.

Back in July 2024, Sitharaman had announced plans to introduce a new income tax law, with a six-month review period. She emphasized that the new law would be clear, concise, and aimed at reducing litigation between taxpayers and the income tax department.

With no new benefits for the old tax regime and the new regime becoming increasingly attractive, the question arises: Is the government subtly preparing to phase out the old system? If that happens, it could reduce incentives for small investment schemes tied to tax deductions, reshaping how individuals plan their finances.

While the government hasn’t made an official statement about scrapping the old regime, the Budget 2025 signals a clear tilt towards making the new tax regime the norm. The coming weeks may offer more clarity, but for now, the old regime’s future appears increasingly uncertain.