Budget expectations: Finance Minister Nirmala Sitharaman is set to unveil the Union Budget on February 1, 2025, a highly anticipated event for taxpayers nationwide. The segment on income tax is of particular interest, as individuals eagerly await any potential changes that could offer relief.
Speculation for this year’s budget centers around possible modifications to tax slabs and the introduction of new relief measures. There is also a strong demand for increased exemptions and deductions.
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Taxpayers are hopeful that the government will adjust income tax slabs to alleviate the tax burden, especially for those at the lower and upper ends of the income scale. One major expectation is the revision of income tax slab rates, with many hoping for an expansion of the threshold for the 30% tax rate, currently set at income above Rs 15 lakh.
Ernst & Young India (EY India) suggested that the government prioritize offering tax relief to the general taxpayers by increasing the basic exemption limit in the new tax regime from Rs 3 lakh to Rs 5 lakh and reducing tax rates.
Similarly, TV Mohandas Pai, the former CFO of Infosys, suggested a set of reforms to be incorporated in the upcoming Budget 2025. In a post on X, Pai urged Prime Minister Narendra Modi and FM Sitharaman to adjust tax slabs to provide relief to the middle class.
His recommendations are as follows:
No tax on income up to Rs 5 lakh
10% tax on income between Rs 5-10 lakh
20% tax on income between Rs 10-20 lakh
30% tax on income exceeding Rs 20 lakh
Pai has underscored the importance of the government offering relief to middle-class income taxpayers. According to him, individual tax collections have surged from Rs 4.8 lakh crore in FY21 to Rs 10.4 lakh crore in FY24.
Tax relief, deductions expected
According to Niyati Shah, Vertical Head, Personal Tax at 1 Finance, middle class should be given some relief as they are heavily as compared to other taxpayer segment.
Applying Pai’s tax slabs, Shah said one can save up to Rs 5 lakh under old tax regime and about Rs 4.34 lakh under the New Tax Regime.
“Middle-class taxpayers have shouldered a substantial rise in income tax contributions, nearly doubling in the last three years. For a salaried individual earning Rs 25 lakhs with deductions under 80C (Rs 1.5 lakhs), 80D (Rs 25,000), and 80CCD(1B) (Rs 50,000), the old regime results in a tax liability of Rs 4,99,200, while the new regime offers modest relief at Rs 4,34,200. However, a simplified slab structure—like no tax up to Rs 5 lakhs, 10% for Rs 5–10 lakhs, and 20% for Rs 10–20 lakhs—would lower this to Rs 3,47,500, saving Rs 1,51,700 under the old regime and Rs 86,700 under the new regime. A fairer system is essential to addressing middle-class concerns and ensuring equitable growth,” said Shah.
Budget 2025 expectations: Tax reforms
- Enhancing Section 80D deductions to Rs 50,000 for individuals and Rs 1,00,000 for senior citizens to promote the adoption of health insurance coverage.
- Increasing home loan interest deductions under Section 24(b) from Rs 2 lakh to Rs 3 lakh to boost investments in the real estate sector.
- Updating the Section 80C limit from Rs 1.5 lakh to encourage investments in tax-saving instruments such as Public Provident Fund (PPF) and tax-saving fixed deposits.
- Extending the 15% concessional tax rate for new manufacturing units beyond March 2024 to support Make-in-India initiatives.
- Proposing higher exemption limits for senior citizens and recommending a reduction in individual and Limited Liability Partnership (LLP) tax rates to 25%, aligning them with corporate rates.