Finance Minister Nirmala Sitharaman is expected to present the Union Budget 2025 on February 1, 2025. Taxpayers are eagerly awaiting potential changes to ease their financial burden, especially as inflation has raised the cost of living.
The government is expected to focus on boosting consumption, given the low GDP for the second quarter, which could lead to tax relief measures aimed at increasing disposable income for salaried taxpayers.
The new tax regime is expected to take centre stage in the budget, with reforms designed to make it a more attractive alternative to the traditional tax structure.
POSSIBLE REFORMS IN THE NEW TAX REGIME
The upcoming budget could include several changes to the new tax regime to simplify compliance and reduce the tax burden for individual taxpayers.
According to tax experts, one significant proposal is raising the income exemption threshold from Rs 7 lakh to Rs 8 lakh or higher.
There is also speculation about increasing the standard deduction for salaried individuals from Rs 75,000 to Rs 1 lakh.
Tushar Kumar, an advocate at the Supreme Court of India, said, “The government might rationalise income tax slabs or reduce tax rates for middle-income earners. This would boost disposable income and encourage economic activity. Introducing deductions for contributions to the National Pension Scheme (NPS) or interest on housing loans could incentivise taxpayers further.”
Also Read : Is your passport still valid? Your usual travel documents could become useless in 2025 – check new rules
Additionally, family-centric tax reliefs, such as deductions for educational expenses or medical insurance premiums, might be introduced.
The government is also considering recalibrating concessional tax rates for income brackets between Rs 7 lakh and Rs 15 lakh. This could provide significant relief to middle-income taxpayers and encourage more people to switch to the new regime.
Although the focus is on modernising the new tax regime, the old tax structure is unlikely to be overlooked. Many taxpayers still prefer the traditional system due to its established deductions and exemptions. Experts suggest that the government could increase the Section 80C deduction limit from Rs 1.5 lakh to Rs 2 lakh and raise the ceiling on housing loan interest deductions under Section 24(b) from Rs 2 lakh to Rs 3 lakh.
Additional changes might include higher deductions under Section 80D for medical insurance premiums and more relief for individuals with dependents who have disabilities under Section 80DD. These measures would ensure that the old tax regime remains a viable option for those who benefit from its provisions.
Also Read : What is ‘jumped deposit scam’ targeting UPI users? Check two ways to protect yourself from new con ploy
Some experts believe the new tax regime is unlikely to introduce many additional deductions, as it aims to keep taxation straightforward. Sudhir Kaushik, Co-Founder and CEO of Taxspanner, said, “The focus is on offering straightforward taxation with reduced rates. Taxpayers who prioritise deductions for savings or expenses may prefer the old tax regime.”
Others are optimistic about provisions that could benefit specific sectors.
Kunal Savani, Partner at Cyril Amarchand Mangaldas, said, “While the new tax regime offers broader slabs, it comes with restrictive deductions by default. However, we can expect welcoming provisions, especially for the real estate segment, which is growing significantly. This could include an increase in home loan deductions and a rationalisation of House Rent Allowance (HRA).”
