New 25% tax rate for middle class, no tax on income up to Rs 8 lakh expected in Budget 2025 Almost 72% of taxpayers opted for the new tax regime while filing tax returns for fiscal year 2023-24
This weekend is a special one and maybe a bit more exciting as we eagerly await - how Union Budget 2025 unfolds. Some questions, like how it will impact all of us, any likely tax savings, what simplification steps would be taken, will all be answered on coming Saturday i.e., on February 01, 2025.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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Let's analyse certain expectations and the options which the Government has.
New personal tax regime
The introduction of the new tax regime in 2020 laid the groundwork for simplifying the tax system, with reduced rates and the removal of certain deductions and exemptions. The Government's endeavour has been to promote the new tax regime, and personal tax changes in the last few Budgets have been made only for the individuals opting for new tax regime. In fact, almost 72% of taxpayers opted for the new tax regime while filing tax returns for fiscal year 2023-24.Also read | Steps to cut income tax appeal pendency urged in Budget 2025
There are a few tax proposals in the new tax regime which may be considered in the upcoming Budget 2025:
Income Tax slab
The basic exemption limit could be raised from Rs 300,000 to Rs 350,000/-. With high inflation, this will provide some relief to individuals by increasing their disposable income.
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Introducing a new income tax slab to provide relief to the middle-income group, as highlighted below:
Income range (Rs.)Tax rateUp to 3,00,000NIL3,00,0017,00,0005%6,00,00110,00,00010%9,00,00112,00,00015%12,00,00115,00,00020%15,00,00118,00,00025%18,00,001Above30%
Expected Deductions under new tax regime
Among the very few deductions allowed in new tax regime, the deduction for employer's contribution to the NPS is an important one. In fact, the deduction cap has been increased from 10% to 14% in the last year's budget. However, there is no deduction allowed for individual's contribution to NPS, which is allowed up to Rs 50,000/- under the old tax regime. The Government may consider extending this benefit under new tax regime also which will benefit non-salaried individual taxpayers and further promote NPSAlso read | Budget 2025 could start implementing Direct tax code by cutting tax rates, removing exemptions, lay out road mapIncome Tax Rebates under Section 87A
Resident taxpayers are currently eligible for a 100% tax rebate under Section 87A on income up to Rs. 7 lakh. This income limit may be raised to Rs 8 lakh for benefiting lower income group further.Taxpayers opting for old tax regime
While the Government is likely to focus on promoting the new tax regime but it can consider a few proposals for the remaining 28% of taxpayers who continue to opt for the old tax regime:Income Tax slabs under old tax regime
The basic exemption limit has remained unchanged since the government came into power in 2014. It may be increased by 50,000, i.e. from Rs 250,000 to Rs 300,000.Deductions for Salaried individuals under old tax regime
Currently, there is a deduction of Rs. 100 per month for children's education allowance and Rs. 300 per month for hostel allowance, both capped for two children. Given the rising cost of education and inflation, these long-standing limits could be revised to Rs. 2,500 per month and Rs. 5,000 per month respectively.While domestic travel is currently eligible for exemption under the Leave Travel Concession, extending this benefit to include international destinations could be considered.Currently, HRA exemption is determined taking into account capping at 50% of salary if the employee resides in metro cities like Delhi, Mumbai, Kolkata and Chennai and 40% for other cities. Considering the rapid growth of new cities like Bangalore, Gurugram, Noida, Pune, and Hyderabad, these cities may also be factored for the 50% capping limit.House property deduction under old tax regime
Taxpayers can claim up to Rs. 200,000 on housing loan interest if the property is acquired within 5 years from the end of the financial year in which the loan was taken. For example, an individual took a loan in September 2024. According to current income tax laws, he/she must acquire the property within five years from the end of the financial year, i.e., by March 31, 2030, to be eligible to claim a deduction of Rs 2 lakh on interest paid on house property. With rising prices and delays in housing projects, the Government may extend the said limit to 7 years and raise the deduction by Rs. 50,000.Many salaried individuals continue to opt for the old tax regime due to housing loans. However, the ceiling of Rs. 200,000 on setting off losses from house property acts as a deterrent. The Government may consider removing this cap and allowing losses from house property to be set off on an actual basis, as was the case before the FY 2017-18.Hike these Deductions to benefit taxpayers
Enhancing the present limit of deduction under Section 80C of Rs. 1.5 lacs (last increased in 2014) to Rs. 2 lacsThe Government may consider increasing the deduction limit under Section 80TTA for interest earned on bank accounts by an additional Rs. 10,000 (currently capped at Rs. 10,000 for all taxpayers, while senior citizens can claim Rs. 50,000 for interest on both savings accounts and fixed deposits). Furthermore, the interest on fixed deposits may be included under this provision for all individuals.As the countdown to the Union Budget begins and it would be interesting to see what steps the Government takes to achieve the goal of the USD 5 trillion economy by striking a balance: bringing smiles to taxpayers, maintaining financial discipline, and driving simplification across the board. Well, now it is a game of wait and watch!
Authored by Chander Talreja, Partner, Vialto Partners
Supported by Manavi Gupta, Director, Vialto Partners
(views are personal)
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This story originally appeared on: India Times - Author:Faqs of Insurances
