Union Budget 2025: Key Changes Expectations in New Tax Regime
With the Union Budget set to be presented on February 1, 2025, the entire nation awaits some change that would will provide financial relief to them and motivate saving.
It is likely that the government would aim to make the new tax regime more appealing with the increase in the number of taxpayers shifting towards it as the new regime has made tax compliance simpler and increases tax-free income. Three main tax changes that will be helpful to alleviate the financial burden on the taxpayers and further accelerate the economic growth are as follows.
1. Change 30% Tax Slab to Rs.18 Lakh
Since its introduction in 2020, the new tax regime has not increased the 30% tax slab, although inflation has been increasing drastically over the last few years. Other slabs, such as 5% and 10%, have increased, but the 30% slab has been the same, at Rs.15 lakh.
This has further increased the burden of expenses on the pocket of higher-income individuals, especially in cities, where cost of living is very high.
The government may look at increasing the threshold limit for the 30% tax slab to Rs.18 lakh. This will bring relief to many people in terms of reduced tax and also help people save more during the time when living costs are on the rise.
2. Increase Savings Through Deductions
Under the old tax regime, taxpayers are allowed many deductions in savings and investment that encouraged savings and investments, such as contributions to insurance policies and other financial products. The new tax regime offers fewer such incentives.
Insurance is still a financial tool which is not fully utilized in India, and the removal of tax deduction benefits may have discouraged many households from saving and purchasing insurance. Reintroduction and expansion of deductions in the new regime may help promote a culture of saving. A practical approach could be to introduce a flat 30% deduction on gross income, capped at Rs.15 lakh, that would make savings and investment in important financial products easier for the taxpayer.
3. Increase Tax-Free Income and Brackets for Equity
The new regime under the tax currently offers income up to Rs.7.75 lakh as tax-free. The limit may be increased up to Rs.10 lakh, as it will help the middle-income class gain much needed relief.
The system offers tax rebates if income is below Rs.7 lakh, but once the income crosses that level, the taxpayer loses the rebate and has to pay the full amount of tax.
This category accounts for individual with an income that exceeds Rs.15 Lakh and has not budged an anti inflationary measure since 2020. It is a big sum of Rs.15 lakh, but the metropolitan areas have exorbitant living costs, for example rentals, EMIs on mortgages, medical, and academic expenses, etc.
Adjustment of tax slabs and relatively fair relief to this category will make the system more just.
Conclusion
The government has an opportunity in the budget to address issues related to the taxpayers, who are looking for meaningful changes. It can increase tax slabs, allow deductions, and adjust tax brackets so that the burden on a household is eased and encouraging people to save can be promoted. These would be beneficial not only for taxpayers but also to the greater financial stability and economic growth in the country.
