Finance Minister Nirmala Sitharaman is set to present the Union Budget on February 1, 2025, with the salaried class eagerly anticipating potential adjustments to income tax slabs and rebates that could increase disposable income.
Government sources have hinted at major changes to the tax regime in the upcoming Union Budget 2025-2026, such as exempting annual incomes up to Rs 10 lakh from taxation and introducing a new 25% tax slab for incomes ranging from Rs 15 lakh to Rs 20 lakh, as reported by Business Standard.
The government is considering two options: Making annual income up to Rs 10 lakh tax-free or introducing a new 25 per cent tax bracket for income between Rs 15 lakh and Rs 20 lakh. Currently, income above Rs 15 lakh is taxed at 30 per cent.
A government source stated: “We are evaluating both options. If our budget allows, we may implement both measures — making income up to Rs 10 lakh tax-free and introducing a 25 per cent slab for income between Rs 15 lakh and Rs 20 lakh.”
The government is willing to absorb a potential revenue loss of Rs 50,000 crore to Rs 1 lakh crore to provide relief in income tax. This anticipated tax relief is expected to stimulate urban consumption, especially during a period of slowed GDP growth (Q2FY25 reported a seven-quarter low of 5.4 per cent).
As of now, individuals making up to Rs 7.75 lakh have no tax liability due to the presence of the Rs 75,000 standard deduction.
According to Akhilesh Ranjan, an advisor at PwC and former member of the CBDT, it would be more beneficial for the government to implement a 25% tax slab for individuals earning between Rs 15 lakh and Rs 20 lakh. This move could potentially increase consumption by putting more money in the hands of these taxpayers, who are likely to spend on consumer durable goods such as refrigerators and televisions.
Most experts anticipate that budget 2025 will bring changes to the personal income tax provisions under the new regime. However, Ankit Jain, a Partner at Ved Jain & Associates, a tax firm, suggests that the old tax regime should not be dismissed. Instead, he proposes that the government could maintain it as a viable alternative to the new regime, accommodating various taxpayer preferences and financial circumstances.
Jain emphasizes the importance of the old tax regime, which takes into account taxpayers' actual expenses, such as rent, home loan repayments, school tuition fees, and other essential costs. While the government seems to be leaning towards the new tax regime, Jain advocates for the retention of the old system to properly reward and recognize taxpayers based on their financial obligations.