Centre mulls options for tax windfall in Union Budget 2024-25

The Indian taxpayer could be in for a pleasant surprise in the forthcoming Budget 2024-25 with the centre considering tax relief for individuals. Among the options being evaluated is an increase in the exemption limit under the new regime to Rs 5 lakh from the current Rs 3 lakh per annum. Another option being considered is nil tax liability on income up to Rs 8 lakh per annum, aligning the tax structure with the criteria for the Economically Weaker Section (EWS). 

EWS includes all those under the general category whose gross annual family income is below Rs 8 lakh.

If the Centre proceeds with the first option of increasing the exemption limit under the new regime to Rs 5 lakh from Rs 3 lakh per annum, those with income above Rs 7.5 lakh will benefit the most. The change in tax slabs will reduce the tax outgo by an average of Rs 10,000.

As per the current rules, those earning up to Rs 5 lakh under the old tax regime and up to Rs 7 lakh under the new tax regime do not have to pay any tax. Section 87a of the Income Tax Act makes this possible by providing a tax rebate of up to Rs 12,500 in the old regime and Rs 25,000 in the new regime. A standard deduction of Rs 50,000 is also available to salaried taxpayers. 

There could be more changes in the income tax structure as well. According to government sources, the Centre aims to further streamline taxes. If changes are not announced in this budget, it is likely that they could be considered in the next budget in February 2025.

Sources have also told Business Today TV that the Centre intends to phase out the old regime, and focus solely on the new regime which precludes most exemptions. 

The Revenue Department is awaiting data to assess the proportion of taxpayers who have shifted to the new regime in the last financial year. This will help the government decide on the final shift to the new tax regime. As per sources, centre is hopeful that more than 50% of taxpayers will transition to the new regime for FY24. 

Budget 2020-21 allowed individuals to choose between the existing tax structure with provisions for a lower tax incidence through specified investments or a new system offering lower tax rates while forgoing most deductions and exemptions. 

Budget 2024-25 is likely to be presented in the third week of July, in the monsoon session of the Parliament. This will be Finance Minister Nirmala Sitharaman's seventh consecutive Budget and the first budget under Modi 3.0.