Union Budget 2025 Tax Expectations: As Finance Minister Nirmala Sitharaman prepares to present the annual budget on February 1, 2025, taxpayers are hoping for personal tax relief that could put more money in their hands. The budget aims to increase spending and stimulate economic growth. As more people switch to the new tax system, the government is expected to make it more attractive.
The new tax system is simpler and offers higher tax-free income, which many people appreciate. This article discusses three ways the government could help people save money and deal with the current economic challenges.
Rising the 30% Tax Slab to ₹18 Lakh
One suggestion is to raise the 30% tax slab limit to ₹18 lakh. The new tax system was introduced in 2020, and since then, inflation has been rising quickly. According to Indian Express, The Cost Inflation Index (CII) has increased by 20.59%. While many tax slabs in the new system have been adjusted for inflation, the 30% slab has stayed fixed at ₹15 lakh.
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This contrasts with the 5% and 10% slabs, which have increased by 40% and 33%, respectively. Now because of this the 30% slab still makes up a large portion of the income tax revenue. If the government raised this limit by 20%, bringing it to ₹18 lakh, it would ease the tax burden on higher-income earners, especially those living in cities with rising living costs.
Promoting Savings
Another way to encourage savings is by expanding the deductions available to taxpayers. In the past, the old tax system offered many ways to deduct taxes, which encouraged people to save. While the new system is simpler, it comes with fewer options for deductions. Insurance penetration remains low in India, and many people do not have enough financial protection. The removal of tax deductions has probably made people less likely to save or buy insurance.
To address this, the government needs to take steps to promote savings. The new tax system is gradually reintroducing deductions, which is a good sign, but the list of available deductions should be expanded in a way that keeps the process simple. A good idea could be a flat 30% deduction on gross income, up to ₹15 lakh.
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Tax Bracket Adjustment for Fairness
Adjusting the tax brackets for fairness could help. Currently, income up to ₹7.75 lakh is tax-free under the new tax system. If the government raised this limit to ₹10 lakh, it would offer significant relief. Tax-free income works separately from the tax slabs.
For example, if a person’s income is between ₹5 lakh and ₹7 lakh, they would normally pay a 5% tax, which equals ₹10,000. However, this tax is waived if the taxable income is below ₹7 lakh. But if a person’s income goes over ₹7 lakh, they must pay the full tax amount without any rebate.
Relief for Higher Earners
People earning over ₹15 lakh have not seen any changes in their tax rates since 2020, and they cannot get any rebates. For urban salaried individuals, ₹15 lakh may seem like a high salary, but when you consider the rising rents, high home loan EMIs, increased healthcare costs for older family members, and growing school fees, there is not much left for savings. These taxpayers also deserve relief through tax brackets that are fairer and provide broader support.
