This year’s tax season in India dragged on until 16 September, but it delivered a milestone: a record 73 million people filed their income-tax returns. That’s up just a sliver from 72.8 million last year, but with tax compliance, flat is good, and a gentle upward slope is even better.

But the headline number isn’t the story. The more interesting detail is this: more than 70% of taxpayers had already opted into the so-called “new” income-tax regime in FY24. While FY25 numbers aren’t out yet, they are likely to be even higher.

“New” is doing some heavy lifting here—the regime debuted back in 2021, and since then, the government has periodically sweetened it to lure people in. This year’s upgrade was particularly compelling: if you earned up to Rs 12 lakh, you owed zero income tax.

That carrot seems to be working. No one will say so officially, but advisors already talk as if the “old” regime is a dead man walking. As one investment planner put it: “Two to three years down the line, the old tax regime won’t even exist. It’s only going to be the new one.”

On paper, the new system looks better. It’s simpler, cleaner, and, crucially, it lets a lot of people pay less tax. It also ditches the old regime’s slightly nagging parental tone: buy insurance, put money in Public Provident Fund (PPF) or Equity Linked Saving Schemes (ELSS), invest in National Pension System (NPS)—then, and only then, we’ll give you your deduction. The new message is: just pay your taxes and live your life. Autonomy is good. So is simplicity. But freedom, it turns out, comes with a price tag.

Because India’s long-term savings culture—the one policymakers used to celebrate—is quietly eroding. Household savings are estimated to have dropped to 22.8% of personal disposable income in FY25, a 27-year low, from 23.1% the year before and 27.2% in FY21, according to a report by global brokerage CLSA. Household debt is heading in the other direction, up to 55% of income from 53.4% last year. CLSA called the trend “stark”. 

Sure, inflation and stressed incomes deserve most of the blame here, but the new regime doesn’t help: it removes the only structural push most families had toward building long-term savings.