By Ravi Jain
Budget 2025 income tax expectations: The announcement of new income tax regime in India’s Union Budget 2020 was a progressive step by the Hon’ble Finance Minister Sitharaman in direction of simplification and transferring away from administratively heavy tax exemption regime. This paved the best way for taxpayers to pay income tax at a lowered slab charge in trade for many of the exemptions and deductions in any other case out there underneath the old income tax regime. This trade-off was meant to offer a clear and simple tax calculation mechanism as an alternative choice to the standard tax computation mechanism loaded with a number of inner tax exemptions calculations and due to this fact the complexities additionally resulting in litigation.
For the preliminary few years there was not a lot uptake of the new income tax regime amongst the taxpayers. This resulted in one other modification of making the new income tax regime because the ‘default’ tax regime efficient from the Financial Year (FY) 2023-24..
As per statistics launched by PIB, roughly 72% of the taxpayers have opted for the new income tax regime i.e., 5.27 crore tax returns had been filed for Assessment Year (AY) 2024-25 underneath the new income tax regime out of the full 7.28 crore. The enhancement of Standard Deduction in opposition to wage income from Rs 50,000 to Rs 75,000 from FY 2023-24, has additional propelled this shift. In distinction, the old income tax regime remained fashionable with the remaining 28% who continued to learn from numerous exemptions/ deductions in direction of rental funds, curiosity/ principal fee in direction of housing mortgage, Mediclaim, life insurance coverage premium, retirement corpus and so on.
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The threshold limits for claiming exemption/ deductions underneath the old income tax regime has remained largely unchanged during the last decade, indicating a pure sundown for the old regime. Taxpayers who proceed to favor the standard construction are nonetheless eager for changes that are a minimum of reflective of the rising inflation and prices of residing in India. Their expectations from the FM are the next:
- Increase in Basic Exemption Limit: from Rs 250,000 to a minimum of Rs 300,000.
- Enhanced Standard Deduction: Increase in commonplace deduction in opposition to wage income to carry on par with the deduction underneath new income tax regime, Rs 75,000.
- Higher deduction for curiosity on housing mortgage: Allow deduction in direction of housing mortgage curiosity as much as Rs 300,000 underneath Income from home property and take away the present capping of Rs 200,000 (for each self-occupied and set free properties).
- Increased Limits underneath Section 80C & 80D: Enhance the restrict underneath part 80C to Rs 200,000 and underneath 80D from Rs 25,000 to Rs 40,000 (Rs 50,000 to Rs 75,000 for senior residents)
While it’s well-known that new income tax regime is simplified tax regime with out tax exemptions and deductions however nonetheless to make the remaining of the 28% submitting tax returns underneath old income tax regime undertake new income tax regime, the expectations are –
- Reduction within the tax charges: from 20% to fifteen% for income ranging between Rs 12,00,000 – Rs 15,00,000, from 30% to twenty% for income vary between Rs 15,00,000 to Rs 20,00,000 and levying 30% tax charge for income over Rs 20,00,000. This may present substantial aid to middle-class and salaried income taxpayers, doubtlessly boosting client spending—a vital driver for financial development.
- Enhance commonplace deduction: from Rs 75,000 to Rs 100,000, to account for inevitable skilled bills, additionally there are hardly any tax breaks in any other case out there.
- Deduction for worker’s contribution in direction of National Pension Scheme (NPS): To prolong deduction of Rs 50,000 underneath part 80CCD(1B) to usher in parity between old income tax regime and new income tax regime (opted by 72% taxpayers). This would encourage funding to construct retirement corpus, selling monetary safety and well-being and helps promote NPS as in opposition to Provident Fund.
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Off late the Income tax division has actively scanned disproportionate refunds and fraudulent claims for exemptions, reflecting improved governance. The Government acknowledges the potential for misuse underneath the old income tax regime and is prone to implement stricter rules, presumably paving the best way for a gradual phase-out of the old income tax regime. The rollout and clever utilization of ITBA 2.0, a sophisticated AI enabled administrative platform by the Government may come useful.
The taxpayers count on a clearer timeline for the long-awaited New Income Tax Bill, with the new income tax regime as a precursor, offering a glimpse into the longer term of our tax panorama. A simplified and environment friendly tax regime is essential for financial development, streamlined compliance, and enhanced authorities income, finally fostering equitable useful resource distribution.
(The writer, Ravi Jain, is Partner, Vialto Partners. Inputs from Vikas Narang, Director and Harini Vishwanath, Manager)
