Union Budget 2026: What Old and New Tax Regime Taxpayers Gained in the Previous Budget

With the Union Budget 2026 just weeks away, expectations among taxpayers are steadily rising. Finance Minister Nirmala Sitharaman is set to present her ninth consecutive Union Budget on February 1, continuing a streak that has seen several major tax reforms over the years. As discussions intensify around possible announcements in Budget 2026, it is important to revisit what taxpayers under the old and new tax regimes received in the previous budget, especially Union Budget 2025.

Over the last few years, the government has consistently focused on easing the tax burden on individuals, simplifying compliance, and encouraging a shift toward the new tax regime. Union Budget 2025 marked one of the most significant steps in that direction.

Big Relief in Union Budget 2025: Income Up to ₹12 Lakh Tax-Free

One of the headline announcements in Union Budget 2025, presented on February 1, 2025, was the decision to make annual income up to ₹12 lakh completely tax-free under the new tax regime. Finance Minister Sitharaman stated that this move would result in annual savings of nearly ₹2 lakh crore for taxpayers.

To implement this relief, the government enhanced the rebate under Section 87A, extending its benefit to individuals earning up to ₹12 lakh annually. As a result, salaried taxpayers effectively became tax-free on income up to ₹12.75 lakh, factoring in the standard deduction. However, it is crucial to note that this rebate is available only under the new tax regime, not the old one.

Why the Government Focused on the New Tax Regime

The new tax regime was first introduced in Union Budget 2020 with the aim of offering a simpler alternative to the traditional system. It was designed for taxpayers who prefer lower tax rates without the complexity of deductions and exemptions.

In Union Budget 2025, the government further strengthened this regime by revising tax slabs, making it more attractive and competitive. Over time, interest in the new regime has increased, especially among salaried individuals who do not heavily rely on tax-saving investments.

One of the biggest advantages of the new regime is ease of compliance. Taxpayers are not required to submit documents such as investment proofs, rent agreements, or insurance certificates, reducing paperwork and the risk of errors.

New Tax Regime Slabs Announced Earlier

Under the revised new tax regime, the basic exemption limit was increased to ₹4 lakh per year. This means individuals earning up to ₹4 lakh annually do not have to pay any income tax.

Here is how the new tax regime slabs stand based on the previous budget:

• Income up to ₹4 lakh: No tax

• ₹4 lakh to ₹8 lakh: 5% tax

• ₹8 lakh to ₹12 lakh: 10% tax

• ₹12 lakh to ₹16 lakh: 15% tax

• ₹16 lakh to ₹20 lakh: 20% tax

• ₹20 lakh to ₹24 lakh: 25% tax

• Above ₹24 lakh: 30% tax

Combined with the enhanced Section 87A rebate, these slabs significantly reduced the tax burden for middle-income earners under the new regime.

Old Tax Regime: No Changes in Slabs

While the government made multiple changes to the new tax regime, no modifications were announced for the old tax regime slabs in Union Budget 2025. The structure of the old regime remained unchanged, with a basic exemption limit of ₹2.5 lakh.

The tax slabs under the old regime continue to be:

• Income up to ₹2.5 lakh: No tax

• ₹2.5 lakh to ₹5 lakh: 5% tax

• ₹5 lakh to ₹10 lakh: 20% tax

• Above ₹10 lakh: 30% tax

Although tax rates are higher under the old regime, it remains attractive for taxpayers who claim multiple deductions and exemptions, such as:

• Section 80C (investments like PF, ELSS, life insurance)

• Section 80D (health insurance premiums)

• Section 24B (home loan interest)

Old vs New Regime: Which Benefited More?

Union Budget 2025 clearly tilted the balance in favor of the new tax regime. Lower tax rates, higher exemption limits, and generous rebates made it especially beneficial for individuals with straightforward income structures and minimal deductions.

On the other hand, taxpayers with significant investments, home loans, and insurance coverage may still find the old regime more suitable, despite higher slab rates.

Looking Ahead to Union Budget 2026

As Union Budget 2026 approaches, taxpayers are keen to see whether further relief will be announced—either through higher rebates, revised slabs, or additional simplification measures. The government’s past actions suggest a continued push toward making taxation simpler, transparent, and taxpayer-friendly.

For now, revisiting the changes introduced in the previous budget provides valuable context for understanding what taxpayers under both regimes might expect when Finance Minister Nirmala Sitharaman takes the stage once again on February 1.