Old tax regime stays in FY27: why govt kept it

What stayed unchanged in Budget 2026

Budget 2026 discussions online converge on one point - no slab changes for FY 2026-27. Both the old and new tax regimes continue with the same slab rates as FY 2025-26. Finance Minister Nirmala Sitharaman has retained the existing structure for both options. The old tax regime remains an optional system that a taxpayer must actively choose while filing the return. Social posts also highlight that the old regime keeps higher rates at lower income levels. In return, it preserves multiple deductions and exemptions that reduce taxable income. The new regime continues as the simplified default for many, with fewer exemptions. The public takeaway is continuity, not a forced migration.

Why the government is not forcing a switch

A consistent theme from the draft Income-tax Rules, 2026 is coexistence, not replacement. Tax authorities have reiterated that taxpayers will keep the freedom to choose between the two regimes. CBDT Chairman Ravi Agrawal told The Indian Express that no sunset date has been fixed. He also said the option remains available and nothing is being imposed. The messaging indicates the government expects more people to shift over time. But it acknowledges that taxpayers have their own reasons to stay in the old regime. Those reasons include deductions that can outweigh the benefit of lower new-regime slabs. This position explains why the old system is being extended rather than scrapped.

Deductions that keep the old regime relevant

Reddit and salary-focused discussions repeatedly point to deductions as the core advantage. The old tax regime continues to allow deductions such as Section 80C and exemptions such as HRA. It is also described as retaining home loan benefits and other structured exemptions. In contrast, the new tax regime is discussed as having almost negligible exemptions. That makes the decision less about ideology and more about individual salary structure. Taxpayers with rent payments and eligible allowances often compare outcomes before choosing. The context also notes the old regime offers nearly 70 exemptions and deductions. This breadth is a major reason the government is keeping it available.

Draft Income-tax Rules 2026: the big signals

The draft Income-tax Rules, 2026 are proposed to take effect from April 1, 2026. Social chatter reads the draft as a signal that the old regime may not fade away soon. One reason is that the draft rules retain several key benefits associated with the old regime. Another is that the rules do not draw a sharp distinction for salary-related benefits. That effectively allows both systems to coexist for common pay components. Commentators also describe the move as a recalibration of the old regime. The stated logic is to make exemptions more practical and inflation-aligned. The result is a dual-regime framework that stays credible for salaried planning.

HRA expansion: recognising new housing hubs

One of the most discussed proposals is the expansion of cities eligible for higher HRA exemption. Currently, only Mumbai, Delhi, Kolkata and Chennai qualify for the higher 50 percent HRA exemption. The draft rules propose adding Bengaluru, Hyderabad, Pune and Ahmedabad to that list. Other cities would continue with the 40 percent limit under the discussed structure. Tax experts quoted in social threads link this to rising housing costs in major employment hubs. Himank Singla of SBHS & Co is cited saying the revision modernises HRA for changing urban demographics. The policy signal is that housing remains a major cost centre for urban taxpayers. By updating HRA coverage, the government reinforces the old regime’s practical value for renters.

Allowance updates that social media flagged

Beyond HRA, allowance revisions are being treated as a meaningful nudge. Posts highlight proposed increases in children’s education and hostel allowances. The children’s education allowance is proposed to rise from ₹100 to ₹3,000 per month per child, for up to two children. The hostel expenditure allowance is proposed to rise from ₹300 to ₹9,000 per month per child. Social commentary frames these as adjustments after inflation eroded the usefulness of old limits. Some discussions also mention increased education and transport allowances making the old regime more appealing. The broader point is not that the government is reversing the new regime. It is that legacy exemptions are being rationalised rather than allowed to become meaningless.

How “tax-free up to” differs across regimes

The context shared online repeatedly mentions the effective tax-free thresholds people talk about. Under the old regime, income up to Rs 5 lakh is described as effectively tax-free. Under the new regime, income up to Rs 12 lakh is described as effectively tax-free through a rebate. Separately, posts also note that under the new regime, income up to Rs 4 lakh is exempt due to the basic exemption limit. For senior citizens aged 60 to 80 years, the basic exemption limit under the old regime increases to Rs 3 lakh. These statements are often used as quick rules of thumb, not a substitute for computation. The real comparison still depends on deductions, exemptions, and salary components. That dependency is a major reason the government is keeping both options alive.

Compliance focus: simpler law, more time to revise

Budget-linked discussion also focuses on administration, not just rates. Sitharaman has said the new Income Tax Act, 2025 is revenue-neutral. The same commentary notes there are no changes to rates or slabs under either regime. The government’s emphasis is described as simplifying return filing and updates. A key proposal mentioned is extending the time for revising returns from 31 December up to 31 March with a nominal fee. Social posts also say the deadline for filing returns has been extended to 31 March. Alongside timelines, the stated goal is voluntary compliance and fewer disputes and litigation. Keeping two regimes while simplifying the law fits that broader compliance narrative.