The highly anticipated Union Budget for the financial year 2025-2026 is set to be presented on February 1, 2025, and it brings hope for a significant tax relief for salaried taxpayers. With changes likely to be introduced in the new tax regime, the government aims to provide substantial benefits to the middle-class population while streamlining tax compliance.
Proposed Changes to the New Tax Regime
As per credible reports, the government is planning to introduce major reforms in the default new tax regime, which was implemented to simplify the taxation structure. If finalized, the following amendments could be announced:
- Income Tax-Free Threshold Raised to ₹10 Lakhs:
The government is deliberating on increasing the income tax exemption limit from the current levels to ₹10 lakhs annually. This would ensure that individuals earning up to this threshold would pay no income tax, giving a direct boost to disposable incomes. - New Tax Slab for ₹15–₹20 Lakhs Income Range:
A new 25% tax slab is under consideration for individuals earning between ₹15 lakhs and ₹20 lakhs annually. This would replace the existing higher tax slabs for this income group, resulting in significant savings for taxpayers in this bracket.
These proposals could lead to a revenue loss of ₹50,000 crores to ₹1 lakh crore, as estimated by officials, but the government seems prepared to bear this cost in its efforts to provide relief to middle-income households.
Current Structure of the New Tax Regime
Under the current framework of the new tax regime, individuals with annual incomes up to ₹7.75 lakhs effectively pay no taxes, after accounting for the standard deduction of ₹75,000. However, for incomes above ₹15 lakhs, the tax rate rises sharply to 30%, which many taxpayers consider burdensome.
The new tax regime, which is the default system, can still be opted out of by taxpayers in favor of the older regime. However, this dual system has led to some confusion, prompting calls for further enhancements in the new structure to make it more appealing.
What Indian Taxpayers Want from the Budget
A recent survey conducted by Grant Thornton India sheds light on taxpayer expectations:
- 57% of taxpayers are looking forward to tax cuts in the upcoming budget.
- Despite the growing popularity of the new tax regime, 63% of taxpayers favor increasing incentives under the older structure.
- To make the new tax regime more attractive, 46% of respondents advocate for lower tax rates, while 26% believe the exemption threshold should be increased further.
This survey highlights a broad demand for revised tax slabs and enhanced deductions, particularly among the middle class, which forms a significant portion of India’s tax base.
