India Inc prefers old tax regime, Indians go for new

The Centre’s new tax regimes for corporations (2019) and personal income tax (2020), which lower base tax rates if no exemption and deduction are claimed, have produced sharply contrasting results. While corporations show reluctance, individual taxpayers have taken a plunge in a big way.

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This year’s budget documents show that 23.17 per cent of companies (of the total 11,31,290) had opted for the new tax regime by FY24 (up from 19.82 per cent in FY23). Against this, 76.64 per cent of individuals who filed their returns electronically until November 2025 (FY26) had switched to the new regime.

Why the contrasting trend?

It is easier to understand why individual taxpayers took the plunge.

Apart from the lower tax slabs, the Centre has also progressively raised the threshold of taxable income in the past few years, raising it to Rs 7 lakh per annum in general, and with a standard deduction of Rs 50,000 to Rs 7.5 lakh for the salaried in FY24. Tax experts say this sweetened the new personal tax regime.

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This year’s budget proposes to raise the threshold further to Rs 12 lakh per annum in general and with a standard deduction of Rs 75,000 to Rs 12.75 lakh per annum. That is expected to further accelerate the switch.

The case of corporations is different.

Why are corporates reluctant?

To get an idea about the relative reluctance to switch, here is what a comparative picture provided by this year’s budget documents shows. It shows the taxable incomes of corporations in both the old and new regimes for FY24.

What is evident is that the taxable income is lower in the new regime only in the case of the Rs 0-1 crore income group, but the reverse is true for all other (higher) taxable income levels.

This means the new corporate tax regime is attractive only for the corporations with Rs 0-1 crore of taxable income, but not for the larger corporations. This would explain why the adaptation level is 23.17 per cent.

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In other words, exemptions and deductions are working wonderfully well for larger corporations.

Old regime advantage

But in practice, the situation is not as simple as the above graph indicates. Gopal Kedia, a chartered accountant and former judge of the Income Tax Appellate Tribunal (Mumbai), says companies get the tax liabilities calculated using both the old and the new regimes and opt for the one that lowers the tax burden.

Nonetheless, there is more evidence that the old regime is working better for corporations, particularly the larger ones.

Look at the effective tax rates for different profit-before-tax (PBT) levels that budget documents provide year after year. The following graph uses those data to show the corporations making the maximum profit (PBT of over Rs 500 crore) have been paying the least effective tax for long, while those making the least profit (PBT of Rs 0-1 crore) end up paying the maximum map — except in FY18 and FY19 when the effective tax rates were highest for the PBT levels of Rs 10-50 crore and Rs 50-100 crore.

For example, in FY24, the last fiscal for which the budget provides data, the corporations with a PBT of Rs 0-1 crore paid at an effective tax rate of 23.68 per cent (maximum) and over Rs 500 crore at 18.85 per cent (the lowest).

The budget documents have known this skewed tax regime for years and have explained it away.

The latest budget documents (2026) say this is because “the larger companies are availing higher deduction and incentives as compared to smaller companies”. This is exactly what the 2025 budget documents too had said.

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In short, larger corporations are sticking to the older corporate tax regime for tax savings.

But this may change in the future. In her budget speech earlier this month, Union Finance Minister Nirmala Sitharaman declared some changes in Minimum Alternate Tax (MAT) — paid at 15 per cent — to enable corporations to shift to the new regime, like cutting it down from 15 per cent to 14 per cent and eliminating allowance of credit in lieu of it in the future.

Kedia says the finance ministry is likely to remove all the exemptions and deductions in the near future to ensure that corporation tax becomes simpler and uniform for all. But given that a whopping 77 per cent of corporations, especially the larger ones, stick to the old regime, this may be easier said than done.

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Meanwhile, another regressive trend that the new corporation tax regime brought in endures.

The following graph uses the budget documents to show how the corporation and personal income tax collections have switched positions. For perspective, it uses the Centre’s gross tax collection as the reference point (in percentage).

Notice how the collections flipped in FY21 — a year after the new corporate tax regime was brought in overnight in September 2019 (FY20).