
Income Tax Relief and Budget 2025: What’s Coming?
Jan 26
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Income tax relief: The Union Budget 2025-2026 is shaping up to be a game-changer for taxpayers. From tax-free income for individuals earning up to Rs10 lakh to the introduction of a new 25% tax slab, Finance Minister Nirmala Sitharaman is considering some major changes to the income tax system. In this blog post, we’ll take a closer look at these anticipated changes and what they mean for taxpayers.
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Income tax relief: Tax-Free Income Up to Rs10 Lakh: A Boon for Taxpayers
First, let's start with some exciting news! The government is considering making annual income up to Rs10 lakh completely tax-free. Imagine that – no taxes on earnings up to Rs10 lakh! Currently, individuals earning up to Rs7.75 lakh enjoy tax relief thanks to a standard deduction of Rs75,000. But this potential change could be a game-changer for many taxpayers.
With a potential Rs10 lakh tax-free threshold, more middle-class families would have extra disposable income, which could ultimately boost urban consumption. This is especially important as the country’s GDP growth has slowed down. In Q2FY25, India’s GDP growth dipped to a seven-quarter low of 5.4%. So, this move could help stimulate spending and drive economic recovery.
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A New 25% Tax Slab: Who Will Benefit?
But that’s not all. The government is also exploring the introduction of a 25% tax slab for individuals earning between Rs15 lakh and Rs20 lakh annually. Currently, incomes above Rs15 lakh are taxed at 30%. The new slab would offer a middle ground, reducing the burden on individuals in this income range and potentially encouraging them to spend more.
As suggested by Akhilesh Ranjan, an advisor at PwC and former member of the CBDT, this new tax bracket could incentivize higher consumption. Individuals in this income bracket are likely to invest in durable goods, such as refrigerators, televisions, and other home appliances, thus boosting demand in the economy.
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What About the Old Tax Regime?
While the government seems to be leaning toward a new tax regime, experts like Ankit Jain, a partner at Ved Jain & Associates, believe the old system should not be dismissed. The old tax regime, which allows taxpayers to claim deductions for expenses like rent, home loan repayments, and school tuition fees, could still be a valuable option for many.
Jain argues that maintaining the old system as an alternative could offer flexibility to taxpayers, allowing them to choose the regime that best suits their financial situation. For instance, individuals with significant expenses could benefit from the old regime's deductions, while others might prefer the simplicity of the new tax system.
Whether you’re interested in the new or old tax regime, our audit services can help you understand your options and make the best decision for your financial future.
Budget 2025: What’s Next for Personal Income Tax?
With all these changes on the horizon, most experts are expecting significant alterations to the personal income tax provisions in Budget 2025. The possibility of tax-free income up to Rs10 lakh and a new 25% tax slab for incomes between Rs15 lakh and Rs20 lakh is likely to make a big impact.
These changes are being considered at a time when the government is prepared to absorb a potential revenue loss ranging from Rs50,000 crore to Rs1 lakh crore. While that sounds like a lot, the government is hoping to stimulate urban consumption, which in turn could help boost economic growth. The government's aim is to provide much-needed relief to taxpayers, while also encouraging spending in the economy.
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Conclusion: Big Changes Ahead for Taxpayers
The upcoming Union Budget 2025-2026 promises to bring a series of exciting changes to the income tax system. From a potential tax-free income up to Rs10 lakh to the introduction of a new 25% tax slab, these measures could have a big impact on taxpayers, especially those in higher income brackets. However, it’s important to remember that the old tax regime might still be an option for some, and consulting with experts can help you make the best choice.
Our team of tax auditors is here to ensure that you understand the nuances of these tax changes and help you maximize your savings. Whether you're looking to understand the new tax regime or need assistance with tax filing, we’ve got you covered.
Jan 26