Is the Government Considering a Sunset Clause for the Old Tax Regime? Insights from CBDT Chairman
With a remarkable 88% of individual taxpayers opting for the new tax regime, recent statements from CBDT Chairman Ravi Agrawal indicate that the government is not planning to introduce a sunset clause for the old tax system. This trend reflects a significant shift towards compliance reforms rather than eliminating the old regime entirely.
Taxpayer Shift to the New Regime
The speculation that the government might phase out the old income tax structure ahead of Budget 2026 has been put to rest. Agrawal confirmed that a substantial majority have chosen the new tax regime, showcasing the simplified tax structure’s effectiveness. He stated, “Choosing a tax regime remains a matter of individual choice, but the response to the new regime has been very good.”
In an interview with PTI, Agrawal noted that when considering ITR-1, 2, 3, and 4, approximately 88% of taxpayers have transitioned to the new tax regime. With such a significant uptake, the government sees no immediate need to withdraw the old option forcibly.
Why Budget 2026 Does Not Include Changes to the Old Regime
Prior to the Budget announcement, many anticipated that Finance Minister Nirmala Sitharaman would set a timeline for phasing out the old tax regime, particularly with the new Income-tax Act set for implementation on April 1. However, no such proposal was put forward.
This deliberate choice likely stems from compelling data. By Budget 2025, around 72-75% of taxpayers had already migrated to the new regime. Over the last year, an additional 13-16% taxpayers switched, driven by major relief measures, especially the allowance that makes income up to ₹12.75 lakh tax-free under the new regime.
Transitioning Focus from Tax Slabs to Compliance
Instead of modifying tax slabs or rates in Budget 2026, the government has redirected its focus toward simplifying compliance and ensuring a smooth transition to the new tax laws. Agrawal emphasized that the direct tax proposals announced on February 1 form part of a broader initiative to simplify tax laws and create a more taxpayer-friendly environment.
The CBDT is set to introduce new income tax return forms and rules shortly, along with a comprehensive set of FAQs to facilitate the rollout of the new law.
Preparing for Taxpayer Inquiries: FAQs and Presentations
Expecting an influx of queries during the April–June quarter post-implementation, the CBDT is also preparing explanatory presentations and FAQs for both taxpayers and income tax officials. Agrawal stated that these resources aim to minimize confusion and litigation during the initial phase of the new regime.
Budget 2026 also introduced several taxpayer-focused measures, including redesigned ITR forms, staggered filing timelines, and streamlined compliance provisions, even as hopes for slab changes went unmet.
As nearly nine out of ten taxpayers are now utilizing the new tax system, the government seems content to allow the old tax regime to persist—at least until taxpayer behavior dictates its redundancy, rather than through policy compulsion.