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Budget 2025: Finance Minister Nirmala Sitharaman might make the new tax regime further attractive, thus encouraging taxpayers to go for the system that offers lower tax rates but significantly fewer deductions
In the last Budget 2024-25, Finance Minister Nirmala Sitharaman announced a number of measures to make the new income tax regime attractive as compared with the old regime.
Budget 2025: Even as the Budget 2025 is around the corner, there are discussions on the possible income tax relaxations by the government. The government is reportedly planning to incentivise the new tax regime, which has lower income tax rates but significantly fewer exemptions and deductions. According to the latest reports, Finance Minister Nirmala Sitharaman on February 1 might announce the inclusion of NPS deductions under the new tax regime also, which is currently available only under the old tax regime.
Union Finance Minister Nirmala Sitharaman is scheduled to present the Budget for 2025-26 in the Lok Sabha on February 1, 2025.
According to an ET report, the government might make the new tax regime further attractive, thus encouraging taxpayers to go for the system that offers lower tax rates but significantly fewer deductions.
The Budget 2025 might increase the standard deduction limit under the new tax regime to Rs 1 lakh, from the current 75,000.
The central government is also likely to cut income tax for individuals earning up to Rs 15 lakh per annum in the upcoming Budget 2025-26, according to Reuters.
In the last Budget 2024-25, the finance minister announced a number of measures to make the new tax regime attractive as compared with the old regime. She raised the standard deduction limit from Rs 50,000 to Rs 75,000 under the new regime. The finance minister also tweaked tax slabs under this regime, which led to a saving of Rs 17,500 in taxes for salaried individuals. The Budget 2025 also made the new tax regime as the default tax regime. Importantly, the old tax regime was left unchanged.
Currently, individuals can opt to pay income tax under the old I-T regime which offers a host of exemptions and deductions or the new I-T regime which is devoid of deductions but has a lower rate of tax.
FM Nirmala Sitharaman in the last Budget 2024-25 in July announced a comprehensive review of the Income Tax Act. Following this, the review committee was constituted led by Chief Commissioner of Income Tax V K Gupta. According to a PTI report on Sunday, the government is likely to introduce the new income tax bill in the upcoming budget session 2025 of Parliament.
Income Tax Rates: New Regime Vs Old Regime
The new tax regime exempts income up to Rs 3 lakh. Those earning annually between Rs 3-7 lakh pay 5 per cent tax, Rs 7-10 lakh (10 per cent), Rs 10-12 lakh (15 per cent), Rs 12-15 lakh (20 per cent) and above Rs 15 lakh (30 per cent).
The old tax regime, however, exempts income up to Rs 2.5 lakh from taxes. Income from Rs 2.5-5 lakh attracts 5 per cent tax, and 20 per cent for income between Rs 5 lakh and Rs 10 lakh. A 30 per cent tax is levied on income above Rs 10 lakh.
Budget 2025 Expectations On Income Tax
Think tank GTRI has suggested a slew of measures to relax income tax burden on individuals. It said the Budget 2025 should raise the income tax exemption threshold to Rs 5.7 lakh to match inflation, simplify the TDS system, and equalise tax treatment for bank deposits and equities.
The threshold for an individual’s income tax liability has remained unchanged at Rs 2.5 lakh since 2014. Adjusted for an annual inflation rate of 5.7 per cent, Rs 2.5 lakh in 2014 is equivalent to just Rs 1.4 lakh today.
To maintain the same real value, the threshold under the old regime of individual taxation should reasonably have been Rs 5.7 lakh. This adjustment is necessary to ensure that tax levels remain consistent with 2014 standards, GTRI said.
It said the minimum wage for a skilled worker in Delhi is Rs 21,917 per month or Rs 2.63 lakh per annum. Many lower-income professionals, such as drivers or multi-tasking staff, could be spared of tax return filing.
The Union Budget 2025 offers a chance to calibrate India’s current direct tax system to match current economic needs, including responding to the stress on middle-income taxpayers, said a report jointly prepared by JB Mohapatra, former Chairman, Central Board of Direct Taxes (CBDT) and GTRI founder Ajay Srivastava.
The Global Trade Research Initiative (GTRI) also suggested raising fixed deductions and exemptions.
The Rs 10,000 deduction for savings deposit interest, set in 2013, is worth only Rs 5,000 today. It should be raised to Rs 19,450 by 2025 to account for inflation.
The Rs 1.5 lakh deduction for life insurance premiums, provident fund contributions, or superannuation fund payments, last revised in 2015, is now equivalent to Rs 83,000. should be adjusted to Rs 2.6 lakh.
The Rs 25,000 deduction for medical insurance payments, last updated in 2016, has dropped to Rs 14,750 in today’s terms. The inflation-adjusted limit for 2025 should be Rs 41,000.
