Budget 2025: Union Finance Minister Nirmala Sitharaman is scheduled to deliver her eighth Union Budget on February 1, 2025. Throughout her tenure, FM Sitharaman has implemented significant reforms in a bid to benefit taxpayers, corporate entities, farmers, and other sectors.
The forthcoming Union Budget is expected to introduce measures to boost dwindling economic growth and ease the financial burden on the middle class, which is facing rising prices and stagnant income growth. Taxpayers hope for changes in capital gains tax and an increase in the standard deduction in both tax regimes.
How much tax do I have to pay? Calculate now
Tax changes in last few Budgets
In the last few Union Budgets, there has been an increased focus on the New Tax Regime. Minimal changes were seen under the Old Tax Regime. It is to be noted that no changes were introduced in the National Pension Scheme (NPS) under the Old Tax Regime. Some changes were made for the taxpayers under New Tax Regime.
1. New Tax Regime
The FM announced the New Tax Regime in Budget 2020 as an optional regime. This was done to simplify the tax system where in tax rates were offered while removing the benefits of certain deductions. In 2023, it was made the default tax regime. That means, if the taxpayers fail to choose their preferred tax regime, the income tax return will be filed under the new regime instead of the old regime.
2. Capital Gains Tax Reforms
Short-Term Capital Gains (STCG): The tax rate on short-term gains was increased to 20 percent from the previous rate of 15 percent on specified financial assets.
Long-Term Capital Gains (LTCG): A new tax rate of 12.5 percent was introduced on long-term gains on all financial and non-financial assets, down from the earlier rate of 20 percent. Additionally, the exemption limit for capital gains on certain listed financial assets was raised from Rs 1 lakh to Rs 1.25 lakh per year.
Besides, the rates of Securities Transaction Tax on the sale of an option in securities have been raised from 0.0625% to 0.1% of the option premium. Additionally, the tax on the sale of futures in securities has increased from 0.0125% to 0.02% of the trading price of such futures.
3. Standard Deduction
The standard deduction is a fixed amount that can be deducted from salary income to decrease an individual’s taxable income. In the Budget 2024, the Finance Minister increased the standard deduction for salaried employees under the new tax regime from Rs 50,000 to Rs 75,000. Additionally, Sitharaman raised the deduction on family pension from Rs 15,000 to Rs 25,000 for those following the new tax regime in the same year.
Old Tax Regime
Under the previous tax system, taxpayers were eligible for a standard deduction of Rs 50,000, a provision that has been in effect since 2018. Prior to that, the deduction amount was Rs 40,000. Although the standard deduction was eliminated in the fiscal year 2005-06, it was reinstated in the 2018 Budget by Arun Jaitley at Rs 40,000, replacing transport and medical allowances.
New Tax Regime:
Initially, the new tax system did not include a standard deduction. However, in 2023, a standard deduction of Rs 50,000 was introduced. Subsequently, in 2024, this deduction amount was raised to Rs 75,000, offering taxpayers greater relief under the updated structure.
4. New tax slabs
Following the Interim Budget 2024, Union Budget 2024 introduced the new tax slab for those following the new tax regime. Now there is no tax for those earning up to Rs 3 lakh. Between Rs 3-7 lakh, tax is 5 percent. Between Rs 7-10 lakh, tax rate is 10 percent, tax rate is 10 percent.
For the financial year 2024, the income tax slabs were as follows –
Up to Rs 3 lakh – Nil
Rs 3,00,001 to Rs 6,00,000 – 5%
Rs 6,00,001 to Rs 9,00,000 – 10%
Rs 9,00,001 to Rs 12,00,000 – 15%
Rs 12,00,001 to Rs 15,00,000 – 20%
Above Rs 15,00,000 – 30%
For the financial year 2025, the income tax slabs are as follows –
Up to Rs 3 lakh – Nil
Rs 3,00,001 to Rs 7,00,000 – 5%
Rs 7,00,001 to Rs 10,00,000 – 10%
Rs 10,00,001 to Rs 12,00,000 – 15%
Rs 12,00,001 to Rs 15,00,000 – 20%
Above Rs 15,00,000 – 30%
5. Deductions and Exemptions
2023 Exemption Limit: In 2023, a maximum exemption limit of Rs 10 crore was introduced under section 54 & 54F. If the cost of the new property exceeds Rs 10 crores, the cost of such an asset shall be deemed to be Rs 10 crore.
2024 NPS Contribution Deduction: Effective 2024, the employer’s contribution to NPS is allowed as a deduction, making it non-taxable for up to 10% of the employee’s salary. The deduction limit was further enhanced to allow for a deduction of up to 14% for employees choosing the New Tax Regime option.
6. Rebate limit
The income limit for availing a rebate on income tax was raised from Rs 5 lakh to Rs 7 lakh in the Union Budget 2023 regime.
7. Reduction in Surcharge Rate
In Budget 2023, the surcharge rate on the highest income bracket, exceeding Rs 5 crore, was slashed from 37% to 25% in the new regime.
8. Crypto tax
In the Budget 2022, new provisions were introduced regarding cryptocurrency transactions and income from digital assets. Section 194S now mandates a 1% TDS on cryptocurrency transactions exceeding Rs 50,000 or Rs 10,000 in a single financial year, based on your filing status. Additionally, Section 115BBH has been implemented to enforce a 30% tax on income from digital assets, along with a 4% cess.