By Mr. Abhay Ray 
Union Budget Income Tax: With urban consumption demand slowing down, most experts are hopeful that FM Nirmala Sitharaman will introduce multiple tax incentives to boost overall spending. Additionally, focus will be on boosting private capital expenditure, pushing tax sops for affordable housing, and easing regulatory and compliance-related processes for non-resident Indians (NRIs). FM Sitharaman will present the Union Budget on Saturday, February 1, 2025. The Economic Survey will be tabled a day before in the parliament, i.e., on January 31, 2025. Taxpayers are hoping that FM Sitharaman will introduce new deductions and exemptions in both new and old tax regimes, such as making annual income of up to Rs 10 lakh tax-free.
Changes proposed by SBI Research
The report presents several tax-relief measures for the government to consider in the upcoming budget:
- Consolidate all exemptions under the new tax regime while increasing the NPS limit from Rs 50,000 to Rs 1 lakh and raising the medical insurance exemption to Rs 50,000 from Rs 25,000.
- Maintain the peak tax rate at 30% for income exceeding Rs 15 lakh, but decrease the rate to 15% from 20% for income in the Rs 10-15 lakh bracket.
- Implement a flat 15% tax on bank deposits across all maturity periods. This income should be added to other earnings and separated from the highest income bracket.
- Raise the tax exemption limit for savings account deposits to Rs 20,000.
- SBI research suggested that this proposal could result in a revenue loss of Rs 50,000 crores, equivalent to 0.14% of the GDP.
As Budget 2025 approaches, the government has been urged before to lower tax rates and broaden the tax exemptions under the new regime.
Old Tax Regime possibilities
There have been no official announcements regarding the abolition of the old tax regime by the government. However, ongoing discussions have been held regarding its future. The new tax regime, which was introduced in the 2020 Union Budget, offers lower tax rates without the exemptions and deductions that were available under the previous system. Despite the increasing popularity of the new tax regime due to its simplicity, many taxpayers still prefer the old system because of the various deductions and exemptions it offers, such as those under Sections 80C and 80D.
Vivek Jalan, Partner at Tax Connect Advisory Services LLP, said eliminating the Old Tax Regime completely and streamlining income tax slabs in the New Tax Regime represents a sensible progression.
“Today, under the New Tax Regime, income tax has become much simpler. With an exemption limit of Rs 7 lakhs, taxpayers pay zero tax at the same income level where they were previously taxed. As the Income Tax Act undergoes a comprehensive review on February 1, 2025, the government should consider making the New Regime the sole tax system,” Jalan said.
He added it is crucial for the government to consider the impact of the approximately 6% annual inflation rate on the purchasing power of money. One potential solution to address this issue is by reducing the tax rate in the New Regime. It is anticipated that the basic exemption or rebate limit could be raised to Rs 9 lakhs, thereby putting more money into the pockets of the middle class. Nevertheless, taxpayers earning over Rs 15 lakh might face financial challenges if they transition to the New Regime. To tackle this issue, the government could introduce a new tax slab for incomes between Rs 15 lakh and Rs 18 lakh, with a tax rate of 25%. This adjustment not only provides relief to existing taxpayers but also boosts disposable income, encourages consumption, and ultimately drives GDP growth.
“Looking at the biased attitude of the government towards the new tax regime, the increasing number of people opting for it, and the fact that the limits of various deductions available under the old regime have not been enhanced after the introduction of the new tax regime, do not get shocked if the finance minister altogether scraps the old tax regime,” tax and investment expert Balwant Jain said.
What major changes are taxpayers hoping for from this budget 2025-26?
- Taxpayers are wishing for a hike in the standard deduction limit under both tax regimes. Currently, while the old tax regime offers a standard deduction of Rs 50,000, under the new tax regime, taxpayers can claim a standard deduction of up to Rs 75,000. Taxpayers are also demanding more exemptions and deductions under the new tax regime. However, while there are hopes of a major overhaul in the provisions of long-term and short-term capital tax, there are reports that the government is potentially unlikely to tinker with this framework.
- According to Ajay Bansal, CEO and Managing Director of DHI International, the potential of India with its medical tourism, particularly hair transplant treatments, is burgeoning, with prospective patients from across the globe looking for high-quality care at lower costs. The present system of levying an 18% GST on hair transplant and hair loss treatments does not seem proper, for they are ‘cure’ treatments that generally attract no taxation. Bansal urges the government to clarify the matter and abolish the GST, alongside encouraging foreign exchange-earning activities through the DGFT. He also begs for the expeditious processing of medical visas and more public-private partnerships so that we can bit into the $15 billion global hair transplant market expanding 22% yearly.
- The Travel & Tourism sector is a very vital part of the Indian economy, contributing 9.1% of GDP in 2024. It is essential in providing employment and foreign exchange earnings. New initiatives are expected in the Union Budget 2025 aimed at supporting growth and infrastructure development. These initiatives are of paramount importance to help India realize its ambition of becoming a $1 trillion tourism economy by 2047,” said Mahesh Iyer, Managing Director and CEO of Thomas Cook (India) Ltd.
Will FM Sitharaman make “Aam Aadmi ” happy with this Budget 2025-26?
The government is also expected to introduce the Direct Tax Code in the budget session this year. The aim of this is to simplify the 63-year-old Income Tax Act and make it easier for taxpayers to understand and comprehend income tax. Notably, the budget session is expected to last between January 31 and April 4, 2025. No specific date for announcing the direct tax code has been announced as of now.
According to Akhil Chandna, Partner, Grant Thornton Bharat, As the 2025 Union Budget draws closer, taxpayers are hopeful for measures that address pressing financial and economic concerns. High on the wish list is a reduction in personal income tax rates to increase disposable income and support consumer spending. There are also expectations for new tax incentives for affordable housing, potentially offering relief to first-time homebuyers and stimulating the real estate sector. Calls to introduce more tax-saving provisions and allow reasonable deductions /exemptions under the new tax regime reflect the middle class’s need for greater financial support. A simplified and transparent tax system, achieved through reforms to the Income-tax Act, remains a top priority to ease compliance and reduce tax disputes.
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