Budget 2025: Taxpayers Set for ‘Double’ Good News with Key Income Tax Changes
Two Major Announcements Expected in Budget 2025 to Benefit Taxpayers
Taxpayers across the country are gearing up for some much-anticipated good news in Budget 2025. According to sources within the government, Finance Minister Nirmala Sitharaman is set to make two significant announcements regarding income tax exemptions in the upcoming budget. These changes are expected to give a major boost to the new tax regime and help enhance the spending capacity of individuals, particularly those in the middle and higher income brackets.
With just days remaining for the budget presentation on February 1, speculation is rife about the potential changes that could impact millions of taxpayers. If the reports are accurate, the government plans to increase tax exemptions, but exclusively within the new tax regime, which was introduced in previous years as an alternative to the old tax system.
Let’s explore what these two major changes could mean for taxpayers.
- Increase in the Limit for Standard Deduction
One of the biggest potential announcements is the proposed increase in the standard deduction limit. In the new tax regime, the standard deduction is currently capped at Rs 75,000. However, sources suggest that the government may raise this limit to Rs1 lakh in Budget 2025. This change is expected to benefit employees and pensioners alike, as it will effectively reduce their taxable income by an additional Rs 25,000.
In the last budget, the government had already increased the standard deduction from Rs 50,000 to Rs 75,000. A further increase in this limit would provide immediate relief to taxpayers, as it means they would be able to deduct a larger amount from their taxable income, thus lowering the amount of income tax they need to pay. This move could be especially beneficial for middle-income groups, allowing them to save more money and boost their disposable income.
- Expansion of the 20% Tax Slab
The second major change on the horizon concerns the 20% tax slab. Currently, individuals with annual earnings between Rs 12 lakh and Rs 15 lakh fall under this tax slab. However, sources indicate that the government may extend this slab to cover income ranging from Rs 12 lakh to Rs 20 lakh.
This change would provide significant relief to taxpayers whose income falls between Rs 15 lakh and Rs 20 lakh annually. Currently, they pay a 20% tax on their income, but with this adjustment, those earning up to Rs 20 lakh could benefit from a lower tax rate, reducing their overall tax burden. This move would likely be seen as a way to enhance the attractiveness of the new tax regime for middle- and high-income groups, who would see a reduction in the amount of tax they owe.
This tax relief would especially benefit professionals, businessmen, and salaried individuals in the higher income brackets, further supporting the government’s efforts to increase the spending capacity of the masses.
The Role of the PMO in the Final Decision
Though reports about these income tax changes are circulating, the final decision on these matters will be taken by the Prime Minister’s Office (PMO). According to insiders, the Finance Ministry has submitted a report proposing these adjustments, emphasizing the need to make the new tax system more appealing to encourage taxpayers to shift from the old tax regime.
Under the current system, individuals with an income of up to Rs 7 lakh pay no tax. However, the new tax regime does not offer exemptions beyond the standard deduction. This has led to calls for further exemptions or adjustments to make the new system more attractive, especially as the government aims to phase out the old tax system.
The government’s primary focus is to make the new tax regime more beneficial for taxpayers while keeping fiscal deficit concerns in check.
Reducing the Fiscal Deficit: A Challenge for Budget 2025
While these proposed changes are likely to provide relief to taxpayers, reducing the fiscal deficit remains a challenge for the government. The fiscal deficit target for the current financial year is set at 4.9%, with a goal to bring it down to less than 4.5% by 2026. Experts predict that balancing tax cuts with fiscal responsibility will be a key challenge for Finance Minister Sitharaman.
The government’s efforts to boost economic growth through tax relief must be weighed against its long-term fiscal health. The final budget will need to strike a balance between stimulating the economy and keeping the fiscal deficit under control.
What to Expect on Budget Day
As Budget 2025 approaches, taxpayers are eagerly awaiting updates on the proposed changes. The Maha Kumbh Mela and other religious events may have temporarily taken the spotlight, but Budget 2025 promises to make an impact on millions of people across the nation.
For now, all eyes are on Finance Minister Nirmala Sitharaman’s upcoming presentation, which will determine the future of India’s tax policies. Whether the government proceeds with these proposals or introduces other changes remains to be seen, but these potential announcements would certainly make for a happy new year for taxpayers.