Majority of Indian Taxpayers Choose New Simplified Tax Regime

The Central Board of Direct Taxes (CBDT) has announced a decisive shift in taxpayer preference. According to the latest data, a significant 88% of individual taxpayers have chosen to file under the new tax regime for the current financial year. This overwhelming adoption signals a major change in how Indians approach their income tax filings.

Understanding the Two Tax Regimes

For several years, Indian taxpayers had to choose between two systems. The old tax regime allowed for numerous deductions and exemptions, such as those for house rent allowance (HRA), investments under Section 80C, and health insurance premiums. However, it came with higher slab rates. The new regime, introduced to simplify the process, offers significantly lower tax rates but requires taxpayers to forgo most of these popular deductions.

The choice between the two has been a key financial decision for individuals. The government has been actively encouraging adoption of the new system by gradually making it more attractive, especially in the latest Union Budget.

Why the New Regime is Gaining Popularity

The primary appeal of the new tax regime is its simplicity and lower rates for many, particularly those in middle-income brackets. The CBDT chief highlighted that the regime is especially beneficial for individuals with an annual income of up to Rs 15 lakh. For these taxpayers, the combination of lower slabs and a standard deduction can often result in a lower tax outgo, even without the traditional exemptions.

Furthermore, the government has confirmed it does not plan to introduce a “sunset clause” for the old regime. This means taxpayers will continue to have the choice each year, providing flexibility and reducing pressure to switch immediately. However, the 88% adoption rate suggests that for a large majority, the math now favors the new, simpler system.

Broader Budget Changes Aim to Shape Behavior

The shift in individual taxpayer behavior is part of a larger strategy evident in the recent Budget. The government has also proposed adjustments to other financial levies to influence economic activity. Notably, changes to the Securities Transaction Tax (STT) and the Minimum Alternate Tax (MAT) were announced.

While the STT change aims to bring more transparency and depth to the capital markets, the proposed MAT adjustment is designed to encourage a specific type of corporate investment. These moves, alongside the push for the new tax regime, show a clear policy direction towards simplification and using the tax code to steer long-term financial decisions by both individuals and companies.

What This Means for Investors and Taxpayers

For the average investor and salaried individual, the high adoption rate of the new tax regime is a critical data point. It suggests that the promise of simplicity and upfront lower rates is outweighing the benefit of complex financial planning around exemptions. Individuals should still calculate their liability under both regimes annually, as the best choice can depend on specific investments and expenses.

The broader message from the government is one of streamlining. By making the new tax regime the default choice and tweaking other financial taxes, the authorities are aiming for a more straightforward fiscal system. This environment could influence future investment trends, as traditional tax-saving instruments become less central to personal finance planning for many.