Finance Minister Nirmala Sitharaman made a big announcement regarding income tax in Budget 2025-26. Income up to Rs 12 lakh was made tax free in the budget. However, this announcement was made only for the new tax regime.
Income Tax: Finance Minister Nirmala Sitharaman made a big announcement regarding income tax in Budget 2025-26. Income up to Rs 12 lakh was made tax free in the budget. However, this announcement was made only for the new tax regime. Even before this, in the last budget, the limit of standard deduction under the new tax regime was increased from Rs 50 thousand to Rs 75 thousand. The government’s concessions are only for the new tax regime. In such a situation, questions are arising in the minds of the people whether the government is going to end the system of the old tax regime. In this regard, Revenue Secretary Tuhin Kant Pandey has said that with the exemption of up to Rs 12 lakh in the new tax system, the old tax system itself is likely to end in a year or two.
Old tax regime will end automatically
Revenue Secretary Tuhin Kant Pandey also said that technology like artificial intelligence (AI), data analysis is being used to increase the scope of tax. Finance and Revenue Secretary Pandey said that we have brought a new tax system. Its purpose is that you invest according to your need instead of thinking about exemptions all the time.
When asked whether the old tax system will be phased out, he said, nothing has been said about the old tax system in the budget. There is exemption in it, tax rates and slabs are different. He said, but I believe that the old tax system will end automatically in a year or two, if such a big exemption has been given, then in 2025-26 almost all taxpayers will come to the new system.
Pandey said, if you want tax exemption on income of Rs 12 lakh, then where will you go? If everyone comes to the new system, then soon the old tax system will end. Anyway, the new tax system is ‘default’. That is, if you have not chosen the old one, then you will automatically come under the new tax system. Finance Minister Nirmala Sitharaman, while presenting her eighth budget on February 1, announced an increase in the personal income tax limit.
Now taxpayers will not have to pay any tax on income up to Rs 12 lakh under the new tax system, whereas earlier this limit was Rs 7 lakh. The increase of Rs 5 lakh in the exemption limit is the biggest increase so far. In response to a question related to long-term savings being affected, he said, people will still save and invest. There has been a trend of change in behavior through tax policy… but people have now become so mature that they can decide how much they want to consume or how much to save or how much to invest.
When asked what will be special in the proposed new Income Tax Act, he said, the new law will be short and simple. It will be easy to understand. Outdated provisions have been removed. Things have been brought together. This will reduce legal disputes. Sitharaman had said in her budget speech for the financial year 2025-26 on Saturday that the government will introduce a new Income Tax Bill in Parliament in the coming week, which will replace the Income Tax Act of 1961.
When asked about the measures to increase the tax base, she said that among other things, AI, data analysis is also being used to increase the tax base. In response to another question, the Revenue Secretary said that normally there is an increase of around 20 percent in revenue (income tax). This year we have set a target of 14 percent growth. This target of growth has been set keeping in mind the reduction of Rs 1 lakh crore in revenue due to tax exemption.
When asked whether the reduction in economic growth rate would affect revenue collection, Pandey said that the growth rate at market price has been kept at 10.1 percent. Earlier it was expected to be 10.4 to 10.5 percent. In the advance estimate of the last quarter, it was 9.7 percent. That is why we have estimated 10.1 percent. If the growth rate is low, then there will be an impact on revenue collection. It is noteworthy that rating agency Fitch has cautioned that due to slow economic growth, there may be some decline in revenue collection and in such a situation, additional restraint will be needed while spending. Net tax receipts are estimated to be Rs 25.57 lakh crore in the current financial year 2024-25, which is likely to be Rs 28.37 lakh crore in the next financial year 2025-26.
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