India’s Finance Minister, Nirmala Sitharaman, is scheduled to present the Union Budget on February 1, 2025. Taxpayers and analysts alike expect the budget to introduce measures that relieve the tax burden for many households, particularly by raising exemption limits and potentially lowering rates for those earning between ₹10 lakh and ₹20 lakh annually. With several state elections underway this year, including in Delhi, observers believe the government may prioritise popular tax-relief measures to bolster public support.
Revision of Tax Slabs and Rates
Businesses and taxpayers are closely watching the Union Budget 2025 for proposed changes to income-tax slabs and rates. Expectations include the following possible adjustments:
- A tax-free threshold raised to ₹3 lakh, exempting income up to that level for all taxpayers.
- A 5% tax rate proposed for annual incomes from ₹3 lakh to ₹7 lakh to support lower-middle-income households.
- A 10% tax rate for incomes between ₹7 lakh and ₹10 lakh, offering relief to middle-income earners.
- An increase to 15% for incomes in the ₹10 lakh to ₹12 lakh bracket.
- A 20% rate on incomes from ₹12 lakh to ₹15 lakh under the proposed structure.
- The highest slab could continue to tax income above ₹15 lakh at 30%.
Change in the Structure of Tax Exemptions
The budget may also reform exemption rules to reflect rising household costs and changing priorities. Suggested changes include:
- An increase in the Section 80C exemption limit to ₹2.5 lakh, giving taxpayers greater scope to claim popular deductions.
- Separating certain education-related deductions from the 80C cap to better address growing education expenses.
- Raising health-related deductions to reduce out-of-pocket healthcare expenditure (OOPE), with proposed limits such as ₹50,000 and higher relief for senior citizens, potentially up to ₹1 lakh.
- Extending Section 80TTA exemptions to cover additional types of bank deposits, encouraging savings and simplifying tax treatment of interest income.
Rise in Standard Deductions
To provide more predictable relief for salaried individuals, the budget could increase standard deductions. Key points under consideration include:
- An upward revision of the standard deduction, potentially from the current ₹50,000 to ₹1 lakh, to offset rising living costs.
- Maintaining the nature of these deductions as fixed allowances that do not require documentary proof of expenses.
- Possibly introducing complementary measures for the salaried class, aligned with broader policy debates around pension reforms.
Easier Late Tax Filing for Taxpayers
Current rules on late filing of income-tax returns impose restrictions, penalties and interest for returns filed after the July 31 deadline. Additionally, taxpayers who miss filings remain subject to assessments for up to 10 previous fiscal years. Experts argue for more balanced provisions that allow honest taxpayers a fair chance to regularise past filings. Expectations for Union Budget 2025 include relaxed procedures or clearer guidelines to encourage voluntary compliance and reduce litigation.
If the budget includes such concessions for the middle class, it could lead to improved voluntary tax compliance and less pressure on tax administration.
Simplification of Capital Gains Tax
Capital-gains taxation is presently complex, with treatment varying by asset class, holding period, tax rate and the investor’s residency status. To simplify and make the system more investor-friendly, possible measures in the budget could include:
- Streamlining the classification of debt and equity instruments to reduce ambiguity.
- Harmonising tax treatment for listed and unlisted securities where appropriate.
- Simplifying indexation norms to make calculations clearer for taxpayers and reduce compliance costs.
Easing TDS Compliance for NRI Home Sellers
Currently, buyers must deduct 1% TDS on property purchases above ₹50 lakh. While resident sellers can comply by filing Form 26QB, the process is more complex for non-resident Indian (NRI) sellers. The budget could ease these compliance requirements to streamline transactions involving NRIs and reduce administrative burdens for both buyers and sellers.
Providing Tax-free Status to Annuity Income from NPS
Since FY 2021–22, some annuity income from the National Pension System (NPS) has been taxed. Given that many retirees depend on annuity payments as a primary source of income, policymakers may consider making NPS annuity income tax-free or offering additional relief for pensioners. Such a step would directly support senior citizens’ financial security and recognise the compulsory nature of annuity purchases for many NPS subscribers.
Not all proposed measures are guaranteed to appear in the final Budget; some may be deferred to a post-election budget or implemented selectively. Analysts caution that while enhanced exemptions and deductions would provide immediate relief to households, they could also affect the fiscal deficit. Nevertheless, many experts remain optimistic that Union Budget 2025 will prioritise targeted tax reliefs and simplification measures that support taxpayers while encouraging broader compliance.