As the Union Budget 2025 approaches, taxpayers are eagerly anticipating measures aimed at easing their financial burden, especially in the wake of rising inflation. Finance Minister Nirmala Sitharaman will present the budget on February 1, 2025, and it is expected that the government will prioritize boosting consumption to counter the subdued GDP growth for the second quarter. Tax relief measures are anticipated, particularly for salaried taxpayers, in a bid to increase disposable income.
A key area of focus is likely to be simplifying the new tax regime. Tax experts have proposed several changes to make it more attractive for taxpayers. One significant suggestion is increasing the income exemption threshold from Rs 7 lakh to Rs 8 lakh or higher. This would provide immediate relief to individuals earning in the lower tax brackets.
Additionally, there is speculation about increasing the standard deduction for salaried individuals from Rs 75,000 to Rs 1 lakh, which would directly benefit middle-income earners. Tushar Kumar, an advocate at the Supreme Court, has highlighted the possibility of rationalizing income tax slabs or reducing tax rates for middle-income earners to encourage economic activity. He also suggests introducing deductions for contributions to the National Pension Scheme (NPS) or for interest on housing loans to further incentivize savings and investments.
There are also discussions around introducing family-centric tax reliefs. These could include deductions for educational expenses or medical insurance premiums, providing additional financial support to households. Furthermore, the government is considering recalibrating concessional tax rates for income brackets between Rs 7 lakh and Rs 15 lakh, which could offer significant relief to middle-income taxpayers and potentially encourage more individuals to switch to the new tax regime.
While modernizing the new tax regime is a priority, the old tax structure is unlikely to be overlooked. Many taxpayers continue to favor the traditional system due to the deductions and exemptions it offers. Experts have suggested that the government could increase the Section 80C deduction limit from Rs 1.5 lakh to Rs 2 lakh and raise the ceiling on housing loan interest deductions under Section 24(b) from Rs 2 lakh to Rs 3 lakh. Furthermore, higher deductions under Section 80D for medical insurance premiums and more relief for individuals with dependents who have disabilities under Section 80DD could be introduced.
However, some experts believe that the new tax regime will not introduce many additional deductions, as its primary aim is to simplify taxation. Sudhir Kaushik, Co-Founder and CEO of Taxspanner noted that the focus of the new tax regime is on offering straightforward taxation with reduced rates. Taxpayers who prioritize deductions may continue to prefer the old tax regime. Kunal Savani, Partner at Cyril Amarchand Mangaldas, further suggested that while the new regime offers broader slabs, it limits deductions by default. However, provisions for the real estate sector, including potential increases in home loan deductions and rationalizing House Rent Allowance (HRA), could be on the cards.
Overall, the Union Budget 2025 is expected to strike a balance between simplifying the tax system and offering relief to taxpayers, with a particular emphasis on middle-income groups, consumption-driven growth, and incentivizing savings and investment.
