Will Budget 2025 announce closure date of old tax regime under Income Tax Act? This is because the government, since the announcement of the new tax regime in Budget 2020, has made changes in the new tax regime only. No changes have been made to the old tax regime
Union Budget 2025 is scheduled to be presented on February 1, 2025. Rumours say that Finance Minister Nirmala Sitharaman is all set to cut income tax rates to boost consumption and provide relief to middle-class and salaried individuals.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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Many tax experts expect changes in the income tax slabs under the new tax regime in Budget 2025. This is because the government, since the announcement of the new tax regime in Budget 2020, has made changes in the new tax regime only. No changes have been made to the old tax regime. Some of the changes made in the new tax regime over the last few years include: Changes in income tax slabs, hike in basic exemption limit, introduction and hike in standard deduction limit from salary income etc.
Also read | Will standard deduction limit be increased under the old, new tax regime in Budget 2025?
ET Wealth Online asked chartered accountants and tax experts whether they think that the finance minister may announce a closure date for the old tax regime in Budget 2025. Here is what they have to say.
Aditi Goyal, Tax Partner, Trilegal - a law firm, says, "While there is speculation that the government intends to scrap the old tax regime, the Finance Minister had earlier indicated that any decision regarding discontinuation of the old regime will be made only after comprehensive evaluation. Over the years, the government has made numerous efforts to make the new tax regime more attractive. As a result, over 70% of taxpayers opted to file their ITR under the new regime for the FY 2023-24 as per a press release from the Ministry of Finance. Given the government's focus on simplifying the income tax system and removing deductions, additional incentives may be announced to encourage more taxpayers to opt for the new regime. However, it is hoped that the old regime will be allowed to continue for at least some more time, given that several taxpayers continue to rely on the deductions provided in the old regime. Maintaining two regimes allows taxpayers the flexibility to make an informed decision considering their income levels, investments and personal situation."
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Also read | Income tax expectations from Budget 2025
Santhosh Sivaraj, Partner, Global Employer Services, Tax & Regulatory Services, BDO India - a consulting firm, says, "In the last 4 budgets, the government has introduced and rehashed the new tax regime in order to simplify tax compliance for taxpayers including making the new tax regime as the default tax regime. As a result, based on sources, almost two-thirds of the individual taxpayers have chosen the new tax regime. It is evident from data released by the tax department that the introduction of the new tax regime has simplified compliance by increasing the number of individuals who have filed income tax returns. It is important to understand that based on income levels and the taxpayer's situation, the old tax regime may turn out to be more beneficial at higher income levels owing to the various exemptions and deductions. Further, there are various sectors which may be impacted, such as real estate, tax-saving financial instruments, etc., if the old tax regime is scrapped completely at once. With all these factors, the budget may not entirely scrap the old tax regime immediately but possibly indicate a sunset provision for the old tax regime."
Prakash Hegde, practising chartered accountant, says, "Section 115BAC, i.e. the new personal tax regime, was introduced from the FY 2020-21. Though there were not many takers for the same initially, it has become more attractive after the subsequent amendments. From FY 2023-24, the new tax regime has been made the default tax regime for individuals, HUF, etc. As per the government's statistics released on August 2, 2024, for FY 2023-24, 72% of the taxpayers opted for the new tax regime and 28% opted for the old tax regime. Given the huge size of the population who are still under the old tax regime, I do not think that the government will end it so soon. It may be and should be continued for some more time. However, to simplify the Income Tax Act, if the government wants to do away with the old tax regime, it should give adequate time for the same, which should not be less than 3 years. This is because most of the taxpayers who have opted for the old tax regime have planned their long-term commitments (e.g. home loan) and investments (e.g. life insurance policy, NPS, Provident Fund) under the belief that they would be eligible for tax benefits for the same for a longer duration."
Sudhir Kaushik, CEO of Taxspanner.com, says, "Every year, taxpayers are made to follow new rules set in the budget. This can sometimes upset the long-term planning that individuals might have done for their investments and financial goals. My humble appeal to the Finance Minister is that, please do not make any changes in the tax rules or the slab structure of the two tax regimes. This will spare taxpayers anxiety and uncertainty. The new tax regime has already been made attractive for non-savers to boost consumption. Let the tax-savers also live their plans and not get into the trap of lower tax rates because future financial responsibilities remain and do not go away merely due to a new tax regime. Let the taxpayers and their advisors choose the regime that suits them best. This will truly be a more democratic approach instead of forcing the new tax regime on taxpayers because the number of taxpayers opting for each tax regime is significant. No need to discourage tax savers and disturb their future financial plans. Lower-income taxpayers have got sufficient tax benefits without tax saving investments, but those who can save should not be discouraged."
Akhil Chandna, Partner, Grant Thornton Bharat - a tax consulting firm, says, "In 2020, the government introduced Section 115BAC which allowed the taxpayers to opt for an alternative tax regime (known as new tax regime) which had lower tax rates on forgoing most of the exemptions/deductions available under the old tax regime. The purpose of the introduction of a new tax regime was to simplify the tax system and reduce the compliance burden on individuals who do not wish to rely on investment-linked deductions /exemptions. The Budget 2023, along with Union Budget 2024, made further changes in the new tax regime to make it more lucrative for the taxpayers. The lack of revision in deduction limits under the old tax regime has made it less attractive over time, especially as inflation erodes its benefits. However, the old tax regime is still crucial for taxpayers who have significant investments in tax savings instruments such as life insurance, PPF, ELSS and house property. It is expected that the government is unlikely to make changes to the old tax regime but may continue simplifying the new tax regime. As Budget 2025 approaches, simplification of the new tax regime and tweaking the slab structure of tax rates will automatically push more taxpayers to opt for it, which would eventually abolish the old tax regime."
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This story originally appeared on: India Times - Author:Faqs of Insurances
