Middle class in Budget 2025: The Finance Bill presented by the FM on February 1, 2025, had a bonanza for middle-class taxpayers

Three things middle-class did not get, despite taxpayer-friendly Budget 2025 However, despite the tax relief of not paying tax on incomes up to Rs 12 lakh, Budget 2025 disappointed middle-class taxpayers with no changes in these three areas

Ishita Sengupta

Partner and India Leader, Vialto Partners

Budget 2025 has been hailed as a bonanza for the middle class. The Finance Minister has not only fulfilled the most awaited wish of increased slab rates but also provided a big relief from tax payment to taxpayers having total income of up to Rs 12 lakh under the new tax regime. This has given much needed extra money in the pockets of a large number of taxpayers who will (hopefully) increase consumption and support India's economic growth aspirations. While it is certainly one of the happiest Budgets to have come out in recent times for ordinary taxpayers, there are still a few areas that could have been considered and added that cherry on the cake but were unfortunately missed.

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Also Read: Will you pay Rs 61,500 as tax on income of Rs 12.10 lakh?

Here are three disappointments from Budget 2025 for taxpayers:

Deduction for medical insurance premium: With the costs of medical treatment in India rising sky high year on year, it is now no longer a choice but a necessity for every individual to have adequate medical coverage for self and family. A medical coverage of up to Rs 5 lakh is provided under the Ayushman Bharat Scheme as a mass welfare scheme, but this is only available to those who have nil or negligible income or to senior citizens aged 70 years and above.

Salaried individuals are largely dependent on their employer's group medical coverage. Many employees find the group coverage insufficient to meet their medical needs and prefer to either take additional coverage or purchase top-up plans from the employer's group insurance scheme by paying an additional premium. Self-employed individuals, too, need to take personal coverage to meet their family's medical treatment costs, because they do not even have any group medical coverage to help them. There is no doubt that the insurance sector is one of the key focus areas for the Government as is evident from the rise in the FDI limits in the insurance sector to 100% announced in this Budget. It is, therefore, logical to assume that the Government understands the urgent need for people to be under medical insurance coverage. Unfortunately, new tax regime does not allow any deduction for medical insurance premiums paid. Extending the deduction for medical insurance premium under new tax regime (Section 80D deduction under the old regime) would have been a strong signal in this direction.

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Deduction of NPS contribution for Self-employed: Employer's contribution to the National Pension System (NPS) is allowed as a deduction under new tax regime for salaried class taxpayers up to 14% of their salary. However, there is no corresponding benefit available for self-employed individuals or professionals/ businessmen opting for presumptive taxation, even if they contribute to NPS for their retirement planning purposes in the new tax regime. In the old tax regime, a parity is provided between salaried and self-employed individuals for self-contribution towards NPS under Section 80C. The introduction of NPS to the private sector was a strong step from the Government to nudge people towards retirement planning. To continue this push, and encourage more taxpayers to participate in NPS, extending the deduction for all categories of taxpayers under new tax regime would have been welcome.

Also Read: How to pay zero tax in new tax regime

Date extension for Revised Returns: Currently, individuals can file revised returns till December 31 of the relevant assessment year (AY), e.g. a revised for AY 2025-26 (related to financial year FY 2024-25) can be filed till December 31, 2025. This poses a practical challenge for individuals who need to claim foreign tax credit (FTC) for tax paid in another country. Most countries in the world follow the calendar year as their tax year. For the purpose of claiming FTC in India, the taxpayer has to furnish proof of tax payment on the income related to the Indian FY, which includes the January-March period of that calendar year. This is practically not possible as the final tax liability in the foreign country can be finalized only after the year ends on December 31. The foreign tax return can also be filed after the end of the calendar year. Consequently, even though India has signed tax treaties with several countries, taxpayers are unable to claim their legitimate FTC in India due to the timing restrictions in filing revised returns. This hardship is faced by several Indians who are sent by their employers to work in other countries for a temporary period. There was a need to consider extending the time to file revised returns at least to restore it to the earlier timeline of 31 March. Considering that India wants to be a market leader in skilled manpower supply to the world, this genuine hardship faced by this category of outbound taxpayers needed to be corrected but was not covered in this Budget amendments.

The Finance Minister has been generous to the middle-class in her considerations this year. Hence, we can hope that she would do justice to these genuine needs as well in the times to come.

(The article is written by Ishita Sengupta, Partner and India Leader, Vialto Partners. Vikas Kumar, Director, Vialto Partners also contributed to the article.)(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

This story originally appeared on: India Times - Author:Faqs of Insurances