The concessional tax regime is gaining traction as an increasing number of individual taxpayers are filing returns under the scheme. The adoption rate of the concessional tax regime for the assessment year 2024–25 stands at approximately 72%, indicating that about two-thirds of taxpayers have utilised the regime to file their returns.

This marks a significant development compared to the previous assessment year when only 15% of taxpayers opted for the new regime, while 85% of individual taxpayers filed under the old regime. The government introduced the new tax regime under Section 115BAC in the Budget 2020, offering concessional rates alongside reduced deductions and exemptions to simplify the tax structure for individuals.

According to data from the Ministry of Finance, of the total 7.28 crore income tax returns filed for AY 2024–25, 5.27 crore were filed under the new tax regime, compared to 2.01 crore under the old regime. This translates to 72% of taxpayers opting for the new tax structure, while 28% remain in the old regime.

This trend may prompt the government to enhance the new tax regime with additional benefits to stimulate consumption. According to sources, both the Ministry of Finance and the Prime Minister’s Office (PMO) have acknowledged that the middle class has been relatively overlooked in recent years, while a large segment of beneficiaries has received aid from both the Centre and respective state governments.

Looking ahead, the government may announce measures such as nil taxation on annual incomes up to ₹9–10 lakh. Another proposal under consideration includes a 25% tax rate for income between ₹15 lakh and ₹20 lakh. However, given the emphasis on fiscal prudence, only one of these proposals may be implemented.

Additionally, the government is examining a proposal to enhance the standard deduction to ₹1 lakh from the current ₹75,000 under the concessional tax regime. This move could significantly boost the appeal of the concessional regime, especially for taxpayers who do not own a home and cannot claim benefits related to home loan principal and interest payments.

Meanwhile, SBI Research, in its prelude to the Union Budget 2025–26, suggested that the government could improve tax compliance and increase disposable income by transitioning all taxpayers to the new tax regime. SBI estimates that this transition, coupled with the removal of exemptions under the old tax regime (except for health and NPS benefits), could result in a nominal revenue loss ranging from ₹16,000 crore to ₹1,19,000 crore across different scenarios.

By enhancing disposable income, the government may not only bolster consumption but also achieve better compliance, potentially balancing out short-term revenue losses.

concessional tax regime

Budget 2025: Growing traction for new tax regime may lead to more relief