Budget 2025: 'Please remember we want more cash in hand', Mohandas Pai calls for tax relief for middle class

Budget expectations: With the Union Budget 2025 less than three weeks away, TV Mohandas Pai, Chairman of Aarin Capital and former CFO of Infosys, said that the government should think about offering income tax relief to the middle class and simplify the existing taxation system.

In an interview with CNBC-TV18, Pai said the government should think about expanding the tax slab, so that people can get more cash in hand. 

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"The low-hanging fruit could be that they expand the tax slab. Because if you look at the data, two years ago, income tax collection was about nearly Rs 7 lakh crores. It went to about Rs 10.35 lakh crore last year. And income tax on individuals could go up to possibly Rs 13 lakh crore. This year gross tax collection is growing at 22%–24% for individual income tax and for corporate tax, gross tax collection is growing at 15%," Pai said on Tuesday.

He also proposed simplifying and improving the tax slabs by suggesting that income between Rs 0-5 lakhs be tax-free, income between Rs 5-10 lakhs be taxed at 10%, income between Rs 10-20 lakhs be taxed at 20%, and income above Rs 20 lakhs be taxed at 30%. 

He recommended that a surcharge be applied only for incomes exceeding Rs 50 lakhs. Additionally, Pai recommended reducing exemptions, with the only exceptions being deductions for insurance and philanthropy. 

"I think in this budget they must expand the tax slab and make it simple: zero to five will have no tax, 5 to 10 maybe 10%, 10 to 20 maybe 20% and above 20 or 25 maybe 30% and surcharge to kick-in after Rs 50 lakhs. There should be no exemption except 80D for insurance and 80G for philanthropy. Because the government is telling us, we are giving you deductions up to about Rs 7.75 lakhs or so you don't have to pay tax, but please remember, what we want is cash in hand. We want money in the hands of people to decide what they want. They're giving a huge deduction for housing, but out of 4 crore people who are paying income tax, I think only about 1 crore have got housing loans. The rest don't have housing loans. So, you must have more cash in hand and simplify the entire tax slab," Pai added. 

"So, I think by doing this, they could possibly put Rs 30,000 to Rs 50,000 in the hands of many people, and stop forcing people to file returns till they cross five lakhs. I think we got to simplify and give it as an option. If people want all the exemptions, let them do that. I think that is there today—we have two class of tax slabs. We should have only three tax slabs. P Chidambaram gave us three tax slabs long ago, it was very simple, you could remember it. But now we have five or six. We need three tax slabs which can be easy, because the biggest challenge is people need money in hand. They need cash in hand," Pai further said.

Earlier today, Pai posted on X, urging Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman to ease the burden on middle-class taxpayers by streamlining and lowering taxes.

This plea comes in light of the recent release of data by the income tax department on direct tax (DT) collections and advance tax collections for the fiscal year 2024-25. The figures show a notable 15.88 percent increase in net direct tax collection, reaching approximately Rs 16.90 lakh crore thus far this fiscal year.

"Very high growth in IT/CT collection for the third year. will be higher than budget again. Time for finance minister Nirmala Sitharaman to give relief, simplify, and reduce taxes on long-suffering middle-class taxpayers," Pai wrote on X.

Additionally, addressing Prime Minister Narendra Modi, he emphasized that NDA supporters within the middle class are facing significant challenges.

"Sir, please give relief to the middle class in budget 25-26 suffering high taxes, high EMI because of high vegetable prices. Tomato, onion, and potato prices based on 2011-12 weights, a massive increase in school and college fees over the last three years," Pai said.

The government is contemplating a reduction in income tax for individuals with annual earnings up to Rs. 15 lakh in the upcoming budget. This measure aims to alleviate the financial burden on the middle class and stimulate consumption during an economic slowdown.