Budget expectations: In anticipation of the Union Budget 2025, taxpayers are hopeful for significant changes in the tax slabs to reduce tax burdens. The prevailing sentiment regarding the upcoming Union Budget is that the financial strain on the middle class should be alleviated. Moreover, there is a call for a boost in consumer spending to stimulate economic recovery and growth. Conversations are ongoing about reducing tax rates for incomes up to Rs 18 lakh to provide tax relief to the middle class and increase consumer demand by injecting more disposable income into the economy.
BankBazaar CEO Adhil Shetty recently proposed key tax reforms, including raising the highest tax slab to Rs 18 lakh, restructuring tax brackets, and implementing a 30% flat deduction on gross income.
Here are his top recommendations and projected tax savings
1. The income tax slab of 30% has been unchanged at Rs 15 lakh since 2020. Despite this, the Cost Inflation Index (CII) has risen by 21% during this time. In light of this, Shetty proposes raising the threshold to Rs 18 lakh to keep pace with inflation. This adjustment would ease the financial strain on urban salaried individuals facing escalating expenses and prevent undue tax burden on higher-income earners, as per Shetty's rationale.
"Let's assume the new regime slabs were adjusted in the following manner that allowed the 30% slab to start above Rs 18 lakh. It would free up monthly savings starting from Rs 1300 on a taxable income of Rs 8 lakh and going up to Rs 7800 on incomes of Rs 18 lakh and upwards. For instance, on an income of Rs 19 lakh, your tax savings would improve to Rs 93,600 or Rs 7800 per month," Shetty explained.
2. From tax-free income limit to expanding tax brackets
Shetty disagreed with the idea of solely raising the tax-free income limit, stating that calls to increase it to Rs 10 lakh may shift the tax burden onto higher earners.
He advocated for a more balanced approach to tax reform, emphasizing the importance of enhancing all tax brackets rather than solely raising the tax-free income limit. Shetty highlighted that in the assessment year 2023-24, only 2% of taxpayers were responsible for 77% of the total income tax, underscoring the necessity for an equitable tax system.
“Simply increasing tax-free income to Rs 10 lakh shifts the burden to higher earners. Tax bracket reforms must ensure fairness across all income levels,” he said.
| 21% Inflation But No Change In 30% Slab |
| Slab | Limit in 2020 | Limit in 2025 | Hike |
| 0% | Rs 250,000 | Rs 300,000 | 20% |
| 5% | Rs 500,000 | Rs 700,000 | 40% |
| 10% | RS 750,000 | Rs 1,000,000 | 33% |
| 15% | Rs 1,000,000 | Rs 1,200,000 | 20% |
| 20% | Rs 1,250,000 | Rs 1,500,000 | 20% |
| 25% | Rs 1,500,000 | - | - |
| 30% | > Rs 1,500,001 | > Rs 1,500,001 | 0% |
| The 25% slab was discontinued. 21% calculated as CII growth from 301 to 363. |
3. 30% flat deduction
Shetty highlighted implementing a 30% flat deduction on gross income, capped at Rs 15 lakh, in order to promote savings and financial planning.
He highlighted that the absence of deductions in the new tax regime has led to a decrease in interest in savings, insurance, and crucial financial protections.
Shetty noted a correlation between the lack of tax deductions and a decline in life insurance coverage, reduced inflows into Equity Linked Savings Schemes (ELSS), and a decrease in household savings.
He asserted that simplifying tax deductions would incentivize individuals to invest in insurance, the National Pension System (NPS), and small savings schemes.
Tax slabs under New and Old Tax Regimes at present
Under the New Tax Regime, salaried taxpayers with an annual income of up to Rs 7.75 lakh are not liable to pay taxes, thanks to the Rs 75,000 standard deduction. Those earning over Rs 15 lakh per annum are subject to the highest tax slab of 30%.
The new tax regime applies different income tax slabs for taxpayers as follows:
Up to Rs 3 lakh: No tax Rs 3 lakh to Rs 7 lakh: 5% Rs 7 lakh to Rs 10 lakh: 10% Rs 10 lakh to Rs 12 lakh: 15% Rs 12 lakh to Rs 15 lakh: 20% Above Rs 15 lakh: 30%
Alternatively, taxpayers can still opt for the Old Tax Regime with the following income tax slabs:
Up to Rs 2.5 lakh: No tax Rs 2.5 lakh to Rs 5 lakh: 5% Rs 5 lakh to Rs 10 lakh: 20% Rs 10 lakh and above: 30%