Will Income Tax Slabs Change? Budget 2025 Offers Hope for Middle Class Relief
As the Union Budget 2025 approaches, expectations are high for potential relief in income tax for middle-class taxpayers. The government, under the leadership of Finance Minister Nirmala Sitharaman, is reportedly exploring options to revamp tax slabs and increase exemptions. These changes could leave more disposable income in the hands of taxpayers, addressing growing demands for financial relief amidst economic challenges.
Focus on Revising the New Tax Regime
The government aims to make the new tax regime more appealing by keeping it free of exemptions while potentially increasing income thresholds and lowering tax rates. Discussions have also centered on introducing higher exemptions for essential expenses like health insurance premiums and pension contributions.
Key Proposals Under Consideration:
- Reduced Tax Rates:
- Lowering the top tax rate for those earning โน15 lakh or more annually from 30% to 25%.
- Introducing a 15% levy for taxpayers with an annual income between โน10โ15 lakh (currently taxed at 20%).
- Enhanced Exemptions:
- Increasing health insurance deductions to โน50,000.
- Allowing deductions of up to โน75,000โโน1 lakh for contributions to the National Pension System (NPS).
- Home Loan Benefits:
- Suggestions to reintroduce benefits for home loan interest payments under the new regime.
Impact on Revenue
While these proposals aim to provide relief to taxpayers, they could result in significant revenue losses for the government. According to estimates:
- Reducing the top tax rate to 25% and introducing additional exemptions could lead to losses ranging from โน74,000 crore to โน1.1 lakh crore annually.
- Implementing a 15% levy for incomes between โน10โ15 lakh, combined with higher exemptions, could result in a revenue loss of โน85,000 crore to โน1.2 lakh crore.
These figures highlight the fiscal trade-offs involved in balancing taxpayer relief and revenue sustainability.
The Debate: Old vs. New Tax Regime
Some experts have called for the abolition of the old tax regime, which continues to benefit those with housing loans and rental allowances. However, government officials argue that maintaining both systems allows taxpayers to choose the option best suited to their financial situations.
Key Arguments:
- For New Regime: Simplicity and lower rates encourage compliance.
- For Old Regime: Favored by taxpayers who rely on exemptions and deductions for significant savings.
Potential Benefits for the Middle Class
If implemented, these changes could provide substantial financial relief to middle-class families:
- Reduced Tax Liabilities: Lower rates and higher exemptions would directly benefit taxpayers in the โน10โ15 lakh income bracket.
- Increased Disposable Income: Enhanced deductions for health and pension expenses would leave more money in taxpayersโ hands.
- Encouraging Investments: Tax breaks on NPS contributions and home loans could incentivize long-term financial planning.
Challenges for the Government
Balancing fiscal responsibility with taxpayer relief remains a critical challenge. Significant revenue losses could impact the governmentโs ability to fund infrastructure projects and welfare schemes. Officials are cautious about introducing too many exemptions, fearing a regression to the complexities of the old tax regime.
Will Income Tax Slabs Change? Budget 2025 Offers Hope for Middle Class Relief
