As Budget 2026 approaches, expectations are rising around further fine-tuning of the new income tax regime. Archit Gupta, Founder and CEO of ClearTax, says while the new regime has clearly emerged as the preferred
choice for most taxpayers, key structural gaps continue to hold back a sizable section of filers.
New Regime Wins On Simplicity, But Not For Everyone
According to ClearTax data, the new tax regime is now the “undisputed winner” for individuals earning under Rs 25 lakh, thanks to lower slab rates and fewer compliances. However, nearly 26% of taxpayers continue to stick with the old regime.
“This isn’t resistance to change,” says Archit Gupta. “Their entire financial lifecycle is built around legacy benefits like HRA and home loans. Switching regimes disrupts the long-term wealth structure they’ve carefully created.”
Bring Home Loan Benefits To New Regime
One of the key asks is the reintroduction of Section 24(b) — interest deduction on self-occupied home loans — in the new tax regime. Currently, this benefit is available only under the old regime, making it difficult for homeowners to switch despite lower tax rates.
Expand Retirement Deductions Beyond NPS
Gupta also calls for broader retirement incentives. While the new regime allows deductions for NPS contributions, high-income earners typically depend on a mix of EPF, PPF and ELSS to build a stable retirement corpus.
“Retirement planning shouldn’t be restricted to one product,” he says, urging the government to recognise diversified long-term savings.
ESOP Taxation Needs Liquidity-Based Reform
On ESOPs, Gupta suggests taxing employee stock options only at the time of share sale, not at exercise. This, he says, would support genuine wealth creation, encourage startup employees and boost participation in IPOs.
Make Full 80% NPS Withdrawal Tax-Free
The government recently raised the NPS lump-sum withdrawal limit to 80%, but the tax-free portion remains capped at 60%. The remaining 20% is taxed at slab rates.
“The Budget should align taxation with policy intent,” Gupta says, adding that making the entire 80% tax-free would unlock the true benefits of NPS investing.
As Budget day nears, these proposals could shape the next phase of tax reform aimed at balancing simplicity with long-term financial planning.
