Budget and tax relief: As the countdown for Union Budget 2025 commences, most industry bodies have been demanding substantial personal tax relief for individual taxpayers from Finance Minister Nirmala Sitharaman. Taxpayers are eagerly anticipating possible changes to alleviate their financial strain, particularly with the rise in inflation impacting the cost of living.
The government is expected to concentrate on enhancing consumption in light of the low GDP in the second quarter, potentially implementing tax relief measures to boost disposable income for employed taxpayers.
Industry bodies are anticipating that the upcoming Union Budget will address the tax burden faced by salaried individuals and middle-class taxpayers, which is expected to lead to an increase in both consumption and household savings. The Confederation of Indian Industry (CII) has expressed the view that Budget 2025 should focus on reducing marginal tax rates for individuals earning up to Rs 20 lakh per annum, as reported by PTI. The CII has emphasized that such a tax relief would set off a positive cycle of consumption, fostering growth, and ultimately leading to higher tax revenue.
Tax Regimes in Budget 2025
The upcoming budget is anticipated to focus on the New Tax Regime, which aims to improve its appeal compared to the conventional tax system. The upcoming budget may involve various adjustments to the current tax framework aimed at simplifying compliance and easing the tax burden on individual taxpayers.
One notable suggestion put forth by tax experts is to potentially increase the income exemption threshold from Rs 7 lakh to Rs 8 lakh or higher. Another proposal under consideration is to raise the standard deduction for salaried individuals from Rs 75,000 to Rs 1 lakh.
Additionally, there is speculation about introducing family-oriented tax benefits, such as deductions for educational expenses and medical insurance premiums. The government is also contemplating revising concessional tax rates for income brackets ranging from Rs 7 lakh to Rs 15 lakh, which could offer substantial relief to middle-income taxpayers and encourage more individuals to transition to the new tax regime.
The government is contemplating adjusting concessional tax rates for income brackets ranging from Rs 7 lakh to Rs 15 lakh. This adjustment has the potential to offer substantial relief to middle-income taxpayers and incentivize more individuals to transition to the new regime.
While experts speculate that the New Tax Regime may see some enhancements, the current tax structure is expected to retain its importance. Many taxpayers continue to favor the Old Tax Regime for its well-established deductions and exemptions. Suggestions have been made by experts for the government to consider increasing the Section 80C deduction limit from Rs 1.5 lakh to Rs 2 lakh and raising the cap on housing loan interest deductions under Section 24(b) from Rs 2 lakh to Rs 3 lakh.
Potential changes could also include higher deductions for medical insurance premiums under Section 80D and increased relief for individuals with disabled dependents under Section 80DD. These proposed adjustments aim to ensure that the old tax regime remains a viable choice for those who benefit from its existing provisions.
Industry bodies and experts
Sanjiv Puri, President of CII, has advocated for a reduction in personal income tax rates, specifically targeting individuals with annual earnings of up to Rs 20 lakh. This suggestion is intended to enhance disposable incomes, stimulate consumption, and foster a positive cycle of economic advancement and revenue generation.
Tushar Kumar, an advocate at the Supreme Court of India, said: “The government might rationalise income tax slabs or reduce tax rates for middle-income earners. This would boost disposable income and encourage economic activity. Introducing deductions for contributions to the National Pension Scheme (NPS) or interest on housing loans could incentivise taxpayers further."
TV Mohandas Pai, former CFO of Infosys, has put forth proposals for essential tax reforms targeted at middle-class taxpayers in advance of the Union Budget 2025. In a recent post on social media platform X (formerly Twitter), Pai has called upon the government to tackle the financial challenges arising from inflation, increasing expenses, and stagnant incomes. His suggestions aim to provide relief to individuals and stimulate economic progress within the country.
Vijay Sankar, Vice President of FICCI, stressed the importance of providing assistance to the middle class amid challenges such as inflation and escalating living expenses. Hemant Jain, President of PHDCCI, also pointed out the opportunity for a boost in consumer demand and alleviation of inflationary pressures through an increase in disposable income.