With the Union Budget 2025 just weeks away, industry leaders are urging Finance Minister Nirmala Sitharaman to introduce measures offering significant tax relief to individual taxpayers. Amid rising inflation and growing living expenses, the demand for reforms that alleviate financial burdens has reached a crescendo.
Taxpayers are hopeful for relief that would increase their disposable income, boost household savings, and stimulate economic growth.
As India grapples with sluggish GDP growth, particularly evident in the second quarter, the government is expected to focus on measures that spur consumption. Economists suggest that reducing the tax burden on middle-class and salaried individuals will play a crucial role in driving growth and boosting household spending, creating a ripple effect that supports economic recovery.
The Confederation of Indian Industry (CII) has put forward suggestions aimed at easing the tax burden on individuals, especially those earning up to Rs 20 lakh annually. According to CII, reducing the marginal tax rates for this income group could lead to increased consumption, spurring demand and driving both economic growth and tax revenue in the long term.
One of the most anticipated aspects of the upcoming budget is the possible tweaking of the new income tax regime. With the regime still struggling to fully outshine the old tax system, several proposals are reportedly under consideration.
The government is likely to enhance the attractiveness of the new tax regime by raising the income exemption threshold from Rs 7 lakh to Rs 8 lakh or higher, as well as increasing the standard deduction for salaried individuals from Rs 75,000 to Rs 1 lakh.
As part of its attempt to make the new tax regime more attractive, the government might introduce family-oriented tax benefits, including deductions for educational expenses and medical insurance premiums. These potential changes are expected to help reduce the tax burden on middle-income families and encourage greater adoption of the new system.
Discussions are also underway to modify tax rates for income groups earning between Rs 7 lakh and Rs 15 lakh. A revision of concessional tax rates for these middle-income earners could lead to substantial tax relief, encouraging a shift toward the new income tax regime.
While the new income tax regime seems poised for more benefits, speculation has grown about whether the old tax system will be eliminated altogether. The old tax regime remains a favorite among many taxpayers due to its familiar deductions and exemptions, which provide tax-saving opportunities. Industry experts, however, are calling for an overhaul that could include enhanced deductions under various sections.
Experts are suggesting an increase in the Section 80C deduction limit from Rs 1.5 lakh to Rs 2 lakh, which would allow taxpayers to save more for retirement and other long-term financial goals.
Another major proposal includes raising the housing loan interest deduction under Section 24(b) from Rs 2 lakh to Rs 3 lakh. Additionally, the suggestion to enhance medical insurance deductions under Sections 80D and 80DD could benefit individuals with dependents or those with special healthcare needs.
Several voices from within the industry have emphasized the importance of supporting the middle class through tax relief in Budget 2025. CII President Sanjiv Puri has specifically called for reducing personal income tax rates for individuals earning up to Rs 20 lakh annually to foster consumption, support economic growth, and alleviate inflationary pressures.
This sentiment is echoed by Supreme Court advocate Tushar Kumar, who has recommended a rationalization of tax slabs to encourage higher disposable income.
In a similar vein, former Infosys CFO TV Mohandas Pai has advocated for tax reforms that address inflation and rising living costs, particularly for the middle-income group. These reforms would allow individuals to keep more of their earnings and drive consumption, a crucial factor in supporting India's economic recovery.
As the countdown to the Union Budget 2025 continues, there is widespread anticipation that Finance Minister Nirmala Sitharaman will introduce measures that provide significant relief to individuals.
Whether through enhancements to the new income tax regime or tweaks to the existing system, the focus is clear: make tax policies more responsive to the needs of the middle class, stimulate consumption, and reduce the financial strain caused by rising inflation. As taxpayers look toward a potentially favorable budget, the onus is on the government to deliver relief that will support growth while maintaining fiscal discipline.