Will There Be Income Tax Cuts in Budget 2025?

With Budget 2025 approaching, many taxpayers, particularly middle-income earners, are hopeful for some relief from the government. Experts anticipate that the government may ease the tax burden for individuals. In this article, we’ll explore what kind of income tax cuts will likely be included in Budget 2025.

Is Tax Relief Expected for Taxpayers Earning Up to Rs.15 lakhs?

Yes, tax relief is expected for taxpayers earning up to Rs. 15 lakhs in the Union Budget 2025. The government is likely to bring in relief measures that would lighten the financial burden on the middle class, which is already being affected by the increasing inflation and cost of living. Some of the proposed changes are:

• Increase in the basic exemption limit: The government has raised the basic exemption limit from Rs. 3,00,000 to Rs. 5,00,000, which would help small taxpayers.
• Direct Tax Code: The introduction of the Indian Direct Tax Code will help make the direct tax filing and compliance process hassle-free for all taxpayers.
• Increase in standard deduction: Experts and economists predict that an increase in the standard deduction may help reduce the tax liability borne by salaried employees.
• Introduction of new tax slabs: The government is also expected to introduce a 25% tax slab for incomes between Rs. 15 lakhs and Rs. 20 lakhs.
• Tax slabs for higher incomes: It is proposed that the threshold for the 30% tax slab, which at present is Rs. 15 lakhs, might be increased to Rs. 20 lakhs.

These measures are targeted at giving great relief to middle-class taxpayers.

Income Tax Cuts in Previous Budget

The following were the income tax cuts that were made in the previous budget:

• Revised Slabs: The slabs were revised in the new regime
• Enhanced Standard Deduction: The standard deduction for salaried employees was increased to Rs. 75,000 under the new regime
• Family Pension: The deduction on family pension was increased from Rs. 15,000 to Rs. 25,000
• NPS Contribution: The deduction limit on the employer's contribution to NPS was increased to 14% from 10%

As a result of the above changes, a salaried employee in the new tax regime can save up to Rs. 17,500 in taxes.

Comparison of Current Tax Slabs vs Anticipated Changes

For the 2025 Budget under the new tax regime, the basic tax exemption limit is expected to be raised from Rs. 3 lakhs to Rs. 5 lakhs and the threshold for the 30% tax slab, which at present is Rs. 15 lakhs, may be increased to Rs. 20 lakhs. 

Here's an example showing the tax calculation for an individual earning Rs. 25 lakhs under both the existing and proposed tax slabs:

Speculations and Expert Opinions on Budget 2025

As India’s Union Budget 2025 approaches, expectations are high across sectors. Economists urge prioritising growth over fiscal consolidation, with a goal to reduce the fiscal deficit to below 4.5% by FY 2026. Key tax reforms are anticipated, including raising the basic exemption limit from TRs. 3 lakhs to Rs. 5 lakhs and promoting the new tax regime. Sector-specific expectations include further support for manufacturing, recognition of the real estate sector’s industry status, and infrastructure investment. Additionally, a focus on employment generation, particularly through the National Employment Policy, and support for startups and MSMEs are expected to drive long-term growth.

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