As the Union Budget 2025-26 approaches, there’s growing anticipation among salaried individuals and middle-class taxpayers about potential tax reforms. Recent reports suggest that the government is considering significant changes to the tax structure, including higher exemption limits, new tax slabs, and increased deductions. These measures aim to provide much-needed financial relief, boost disposable income, and stimulate economic growth. Let’s dive into the key expectations and what they could mean for you.
Key Highlights of Budget 2025 Tax Reforms
- Tax Exemption for Income Up to Rs 8-10 Lakh
One of the most talked-about proposals is the possibility of exempting annual incomes up to Rs 8-10 lakh from taxation. This move would provide substantial relief to middle-class taxpayers, allowing them to retain more of their hard-earned money. Currently, individuals earning up to Rs 7.75 lakh are exempt from taxes due to the Rs 75,000 standard deduction. Raising this threshold could significantly ease the financial burden on millions of taxpayers. - Introduction of a 25% Tax Slab for Rs 15-20 Lakh Income Bracket
The government is reportedly considering introducing a new 25% tax slab for incomes between Rs 15 lakh and Rs 20 lakh. Currently, income above Rs 15 lakh is taxed at 30%, so this change would reduce the tax burden for those in this income group. Experts believe this could boost consumer spending, as taxpayers would have more disposable income to invest in big-ticket items like appliances, electronics, and real estate. - Increase in Standard Deduction Limit
In Budget 2024, the standard deduction for salaried employees and pensioners under the new tax regime was raised to Rs 75,000. However, those under the old regime continued to receive Rs 50,000. For Budget 2025, there’s a strong demand to increase the standard deduction limit to Rs 1.2 lakh for both regimes. This would provide a uniform benefit to all taxpayers and further reduce their taxable income. - Higher Basic Exemption Limit
Taxpayers may also see an increase in the basic exemption limit from Rs 3 lakh to Rs 3.5 lakh. This adjustment would provide a welcome boost to disposable income, especially for lower- and middle-income groups, and encourage higher consumption levels.
Expected Deductions and Rebates
- Tax Rebates Under Section 87A
Currently, resident taxpayers can claim a full tax rebate under Section 87A on income up to Rs 7 lakh. There’s a proposal to increase this limit to Rs 8 lakh, which would further benefit lower-income groups. This rebate effectively reduces the tax liability to zero for eligible taxpayers, providing significant relief. - House Property Deduction
Taxpayers with housing loans can currently claim a deduction of up to Rs 2 lakh on interest payments if the property is purchased within 5 years of taking the loan. However, due to rising property prices and project delays, there’s a demand to extend this deadline to 7 years and increase the deduction limit by Rs 50,000. Additionally, the government may consider removing the Rs 2 lakh cap on house property losses, allowing taxpayers to offset losses based on actual figures. - NPS Contributions
Under the new tax regime, only the employer’s contribution to the National Pension System (NPS) is eligible for deduction, with the cap recently increased from 10% to 14%. However, individual contributions to NPS are not deductible in the new regime, unlike the old regime, which allowed deductions up to Rs 50,000. Extending this benefit to the new regime could encourage more individuals to participate in NPS and secure their retirement.
Impact on the Economy
The proposed tax reforms are expected to have a positive ripple effect on the economy. By reducing tax rates and increasing exemptions, the government aims to:
- Boost disposable income: With more money in hand, taxpayers are likely to increase spending on goods and services, driving demand and economic growth.
- Encourage savings and investments: Higher disposable income could lead to greater investments in financial products like NPS, mutual funds, and real estate.
- Stimulate consumer spending: Lower tax burdens could lead to increased purchases of consumer durables, electronics, and other big-ticket items, benefiting industries across the board.
What Taxpayers Want
The sentiment among taxpayers is clear: they want more. From higher standard deductions to increased exemption limits, the middle class is hoping for significant tax relief in Budget 2025. The phrase “DIL MAANGE MORE” (the heart wants more) perfectly captures the expectations of salaried individuals and middle-income groups.
Conclusion
Budget 2025 has the potential to be a game-changer for middle-class taxpayers. With proposals like tax exemptions for income up to Rs 10 lakh, a new 25% tax slab, and higher standard deductions, the government is signaling its commitment to easing the financial burden on individuals. These changes could not only provide immediate relief but also stimulate economic growth by boosting consumption and investments.
As we await the Finance Minister’s budget speech on February 1, 2025, all eyes are on whether these proposals will become a reality. For now, taxpayers can remain hopeful that Budget 2025 will bring the much-needed financial respite they’ve been waiting for.
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