With Budget 2025 just days away, taxpayers may have reasons to cheer as significant updates regarding income tax are expected. According to government sources, Finance Minister Nirmala Sitharaman is likely to make two key announcements aimed at making the New Tax Regime more appealing and providing financial relief to taxpayers. These measures are expected to stimulate the economy by increasing disposable income and boosting consumer spending.
Changes to Income Tax Exemptions in the New Tax Regime
Reports suggest that the government is considering revising income tax exemptions, but the benefits will be exclusive to the New Tax Regime. Two significant changes are anticipated: an increase in the standard deduction limit and an expansion of the 20% tax slab, targeting relief for middle- and high-income taxpayers.
1. Increase in Standard Deduction Limit
The current standard deduction limit in the New Tax Regime stands at ₹75,000. Sources indicate that this could be raised to ₹1 lakh in Budget 2025. Last year, the deduction was increased from ₹50,000 to ₹75,000. If implemented, taxpayers could reduce their taxable income by up to ₹1 lakh, directly lowering their tax burden. This change would benefit both salaried employees and pensioners, leaving more money in their hands.
2. Expansion of the 20% Tax Slab
The government is also expected to widen the scope of the 20% tax slab under the New Tax Regime. Currently, taxpayers earning between ₹12 lakh and ₹15 lakh are taxed at 20%. However, the government may extend this bracket to incomes up to ₹20 lakh. This revision would significantly reduce the tax liability for individuals earning between ₹15 lakh and ₹20 lakh, providing much-needed relief to middle- and high-income groups.
Final Decision Rests with PMO
While these potential changes are promising, the final decision will be taken by the Prime Minister’s Office (PMO). According to sources, the Finance Ministry has submitted a report suggesting that making the New Tax Regime more attractive is essential for phasing out the old tax system. The report emphasizes the need to enhance existing exemptions within the New Tax Regime, which currently offers tax-free income up to ₹7 lakh and limited deductions.
Fiscal Deficit Remains a Key Challenge
The Union Budget will be presented on February 1, marking Finance Minister Sitharaman’s eighth consecutive budget and the Modi government’s second full budget in its third term. Economists have highlighted the importance of controlling the fiscal deficit, which is projected to be 4.9% for the current financial year. The government aims to reduce this figure to below 4.5% by 2026, balancing fiscal discipline with taxpayer relief.
Stay tuned for Budget 2025, as these potential changes could mark a significant step toward a more taxpayer-friendly economy!
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