Income tax relief: How much tax can be saved if FM Nirmala Sitharaman follows Mohandas Pai's proposal?

Income Tax expectations: TV Mohandas Pai, the former CFO of Infosys, has proposed a series of reforms to be included in the upcoming Budget 2025. In a post on X, Pai has appealed to Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman to revise tax slabs to offer relief to the middle class. 

He has recommended: 
No tax on income up to Rs 5 lakh, 
10% tax on income between Rs 5-10 lakh, 
20% tax on income between Rs 10-20 lakh, 
 30% tax on income exceeding Rs 20 lakh.

Pai has emphasised the necessity for the government to provide relief to middle-class income taxpayers. According to Pai, individual tax collections have surged from Rs 4.8 lakh crore in FY21 to Rs 10.4 lakh crore in FY24.

“Pl give relief to long suffering middle class IT payers. They are very upset with NDA but voted for you. The individual tax collection has gone up from Rs 4.87l cr in 20-21 to Rs 10.45l cr in 23-24! 114% increase over 3 years. 24-25 gross Individuals IT collection up by 22%, net may reach 12.5l cr [sic],” Pai said in his post on X (formerly Twitter).

Business Today spoke to CA (Dr.) Suresh Surana to understand the tax implications if these tax slabs are introduced by the Centre. 
 
"The recent modifications to the tax slabs under the New Tax Regime have offered some degree of relief to middle-income groups. While the enhancement of tax slabs has resulted in overall lower tax liabilities for individual taxpayers, still there are many middle-income earners who expect further recalibration in the tax rates to reduce their overall tax obligations. Hence more liberal tax slabs are required for such middle – income earners to ease their overall tax outflow," Dr Surana told Business Today.

Here's the tax breakup and savings as per Dr Surana, if Pai's recommendations are followed by the Finance Minister.

Tax Slab	Rate
Upto Rs 5,00,000	0%
Rs 5,00,001 to 10,00,000	5%
Rs 10,00,001 to 20,00,000	20%
Above Rs 20,00,000	30%

Also, liberalisation of these slabs is also required in the case of Senior Citizens (including super senior citizens) to exempt income up to Rs. 7.5 lakh.

We have assumed the Total Income of an assessee to be Rs. 25 lakhs based on which we had made the comparison of how much tax we can save. The following example will help us to understand it more accurately the changes proposed by Mr. Pai in his tweet.

As per the Existing New Regime:

Tax Slab	Rate	Tax Liability
Upto 3,00,000	0%	0
Rs 3,00,001 to 7,00,000	5%	20,000
7,00,001 to 10,00,000	10%	30,000
10,00,001 to 12,00,000	15%	30,000
12,00,001 to 15,00,000	20%	60,000
Above 15,00,000	30%	3,00,000
Total Tax		Rs 4,40,000
Health and Education Cess	4%	17,600
Total Tax Liability		Rs 4,57,600

As per the New Tax Regime Proposed (Budget 2024)

Tax Slab	Rate	Tax Liability
Upto Rs 5,00,000	0%
5,00,001 to 10,00,000	5%	25,000
10,00,001 to 20,00,000	20%	2,00,000
Above 20,00,000	30%	1,50,000
Total Tax liability		3,75,000
Health and Education Cess	4%	15,000
Total Tax Liability		Rs 3,90,000

If we compare both the tax slabs a person having an income of Rs. 25,00,000/- can indicatively save an amount of Rs. 67,600/-, we have assumed no deductions under chapter VI-A have been applied.

"While the New Tax Regime has introduced various deductions that which made it lucrative, there is considerable scope for further improvements. Incorporating additional deductions under Sections 80C, 80D, as well as recognizing basic exemptions such as HRA and LTA, the government can effectively reduce the tax burden on middle-income groups," Dr Surana added.