Income Up to ₹10 Lakh May Become Tax-Free
Income Up to ₹10 Lakh May Become Tax-Free The Union Budget 2025-26, set to be presented by Finance Minister Nirmala Sitharaman on February 1, 2025, is generating immense anticipation among taxpayers. As whispers of significant income tax reforms circulate, hopes are high for measures that could alleviate the tax burden and boost disposable income. According to a report by Business Today, the government is considering major changes to income tax slabs under the New Tax Regime, potentially making annual income up to ₹10 lakh tax-free.
In this blog, we dive into the proposed changes, their potential implications, and expert opinions to help you understand how Budget 2025 could impact your finances.
Proposed Changes in Income Tax Structure
Government sources have hinted at two transformative proposals under consideration:
- Complete Tax Exemption for Income Up to ₹10 Lakh: Income Up to ₹10 Lakh May Become Tax-Free If implemented, individuals earning up to ₹10 lakh annually will no longer be required to pay income tax. Income Up to ₹10 Lakh May Become Tax-Free This would mark a monumental shift, providing significant relief to middle-class taxpayers and stimulating economic activity by increasing their disposable income.
- New 25% Tax Slab for Income Between ₹15 Lakh and ₹20 Lakh: Currently, the New Tax Regime imposes a 30% tax rate on income above ₹15 lakh. Introducing a 25% slab for incomes ranging from ₹15 lakh to ₹20 lakh could reduce the tax liability for high-income earners and encourage greater consumer spending on durable goods and services.
Government’s Perspective on Revenue Impact
Implementing these changes would involve a considerable revenue sacrifice. Estimates suggest a potential loss of ₹50,000 crore to ₹1 lakh crore in tax collections. However, the government appears willing to absorb this shortfall to achieve broader economic goals, including:
- Boosting Consumption: By leaving more money in the hands of taxpayers, the government aims to stimulate spending, particularly on consumer goods such as electronics, automobiles, and household appliances. Income Up to ₹10 Lakh May Become Tax-Free
- Economic Growth: Enhanced consumption could catalyze overall economic growth, which aligns with the government’s long-term vision for a robust economy.
A government official noted, “If the budget allows, we may implement both measures – making income up to ₹10 lakh tax-free and introducing a 25% slab for ₹15 lakh to ₹20 lakh incomes.”
Why the Focus on Tax Relief?
The New Tax Regime, introduced in Budget 2020-21, has been positioned as a simpler alternative to the Old Tax Regime. Income Up to ₹10 Lakh May Become Tax-Free However, it has faced criticism for not offering deductions on essential expenses such as housing loans, tuition fees, and insurance premiums. To increase its adoption, the government is now focusing on:
- Simplifying tax structures further.
- Balancing lower tax rates with higher take-home pay for taxpayers.
- Addressing taxpayers’ concerns by offering more relief under the New Tax Regime.
Expert Opinions on the Proposed Changes
The potential reforms have sparked diverse opinions among industry experts:
- Support for a New 25% Tax Slab: Akhilesh Ranjan, PwC advisor and former CBDT member, believes that introducing a 25% tax slab for incomes between ₹15 lakh and ₹20 lakh could be a game-changer. He says, “This move can empower middle-income earners and encourage spending on durable goods, leading to economic benefits.”
- Preserving the Old Tax Regime: Ankit Jain, Partner at Ved Jain & Associates, advocates retaining the Old Tax Regime alongside the New Tax Regime. He explains that the Old Tax Regime accounts for taxpayers’ essential expenses such as rent, home loans, and tuition fees, making it a more comprehensive option for those with significant financial commitments.
- Incentivizing Taxpayer Spending: Many experts agree that tax relief for middle and high-income earners could lead to increased spending, boosting demand for goods and services and driving economic growth.
How Taxpayers Could Benefit
1. Salaried Employees
In the previous budget, the standard deduction limit for salaried individuals under the New Tax Regime was increased to ₹75,000. This ensured that individuals with annual salaries up to ₹7.75 lakh did not pay any tax. With the proposed changes in Budget 2025, individuals earning up to ₹10 lakh could enjoy complete tax exemption, providing additional relief.
2. High-Income Earners
For those earning between ₹15 lakh and ₹20 lakh, the introduction of a 25% tax slab would reduce their tax liability compared to the current 30% rate. This measure is expected to increase disposable income for this group, encouraging higher spending on luxury and lifestyle goods.
3. Middle-Class Taxpayers
Middle-class taxpayers stand to benefit the most from these reforms, with the dual advantage of lower taxes and increased purchasing power. This could help them allocate funds for savings, investments, or discretionary spending.
Old vs. New Tax Regime Debate
While the government seems inclined towards the New Tax Regime, many taxpayers still prefer the Old Tax Regime due to the deductions it offers. Let’s compare the two:
New Tax Regime:
- Pros: Lower tax rates; simpler filing process.
- Cons: No deductions for housing loans, tuition fees, or insurance premiums.
Old Tax Regime:
- Pros: Multiple deductions for essential expenses; suitable for individuals with higher financial commitments.
- Cons: Higher tax rates; more complex filing process.
Ankit Jain argues that retaining the Old Tax Regime as an alternative would address the needs of diverse taxpayer groups.
Conclusion: What’s Next for Taxpayers?
The Union Budget 2025 has the potential to revolutionize income tax policies in India. By making income up to ₹10 lakh tax-free and introducing a 25% tax slab for incomes between ₹15 lakh and ₹20 lakh, the government could bring substantial relief to taxpayers while boosting consumption and economic growth.
As February 1 approaches, all eyes are on the Finance Minister to see how these proposals take shape. Income Up to ₹10 Lakh May Become Tax-Free Whether you are a salaried employee, a business owner, or a high-income earner, these reforms could significantly impact your finances in the coming fiscal year.
Stay tuned for more updates on Budget 2025 and its implications. Don’t forget to share your thoughts and expectations in the comments below!
Sources – https://shorturl.at/sXss3
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