Budget 2025 Expectations on Income Tax

As the 2025 Budget approaches, there is a widespread anticipation for positive changes and relief. This will be the second budget of Narendra Modi’s third term, and it is expected to be focused on boosting economic growth which is in line with the vision of a 'Viksit Bharat' (Developed India) by 2047. In this article, we will explore some key expectations for this budget.

Expected Date of Budget 2025 Announcement

The Union Budget for 2025 is likely to be presented by Nirmala Sitharaman on February 1, 2025, at 11:00 AM IST. While the date has not been officially confirmed, it is anticipated to follow tradition and be delivered on February 1.

Anticipated Changes in Income Tax from the Budget 2025 

The changes in Income tax that are being anticipated from the Budget 2025 are as follows:

Reforms Under Section 80D:

• Proposed Tax Deduction Limits: Proposal to Raise Tax Deduction Limits to Rs 50,000 (Rs 1,00,000 for Seniors) and Include Section 80D in the New Tax Regime to Promote Insurance Penetration.
• New Tax Regime Inclusion: The current tax deduction limits under Section 80D have remained unchanged for several years. 

Given the rising health concerns and the growing need for comprehensive insurance coverage, it is crucial to increase these limits. 

Higher Deduction Limit on Home Loan Interest

• Proposed Change: It is expected that the government to promote homeownership might increase the limit under  section 24(b) for deduction on interest on home loan from Rs 2 lakhs to Rs 3 lakhs. 

This change aims to:

1. Encourage homeownership
2. Boost the real estate sector
3. Strengthen economic growth by increasing investments in residential properties.

Increase in Limit Under Section 80C

• Proposed Tax Deduction Limits: Similarly, the deduction limit under Section 80C is expected to be raised from Rs. 1.5 lakhs to Rs. 2 lakhs, as it has remained unchanged since 2014. 

Raising the Section 80C limit would incentivize savings and investments in schemes like PPF, ELSS, and NSC, benefiting taxpayers and promoting financial discipline.

Reduced Corporate Taxes for New Manufacturing Companies

• Proposed Extension for Concessional tax rate: The concessional rate of 15% is applicable to new domestic manufacturing companies which were incorporated before March 31, 2024. It is proposed to extend this benefit to companies beginning manufacturing from April 1, 2024.

This would provide new opportunities for investors setting up in India. Additionally, with the growth of Global Capability Centers (GCCs) in India, which have increased to 1,700 and are projected to grow further, there is a proposal to offer a similar 15% tax rate to GCCs to support their expansion and job creation.

Production Linked Incentives (PLI) for R&D

The removal of the weighted average deduction on R&D expenses has eliminated extra tax incentives for taxpayers investing in R&D. To encourage private investment in R&D, a new incentive could be introduced, offering an additional deduction for specified R&D expenditures (e.g., salaries, materials) based on factors like increased turnover, additional employment, or investments in fixed assets for R&D. This would aim to boost private sector investment in research and development.

Changes in Tax Slabs

The Government might make certain changes to the tax slabs to give relief to the individual taxpayers to boost consumption and increase disposable income, particularly for middle-income earners. It is expected that the basic exemption limit under the new regime might be increased from Rs. 3 lakhs to Rs. 5 lakhs. 

Here's an example showing the tax calculation for an individual earning Rs.15 lakh under both the existing and proposed tax exemption limits with a standard deduction of Rs. 75,000:

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