Union Budget 2025: Breaking down the expected changes to income tax slabs

File Pic

As the Union Budget 2025 approaches, there is growing anticipation regarding possible changes in income tax slabs. The budget is an important annual event that directly impacts every taxpayer in India, shaping the fiscal policy and potentially altering the amount of tax you pay. Over the years, the government has made numerous adjustments to tax rates and exemptions, all aimed at fostering economic growth while ensuring that taxpayers are not burdened excessively.

Understanding the income tax slabs

Income tax slabs are thresholds set by the government that determine how much tax a person needs to pay based on their income level. These slabs are usually divided into different categories, including individual taxpayers, senior citizens, and women. The government's approach to income tax slabs has evolved over time, with the main goal of easing the burden on the middle class and stimulating the economy.

For the financial year 2024-25, the income tax slabs were as follows:

> Income up to Rs 2.5 lakh: No tax

> Income from Rs 2.5 lakh to Rs 5 lakh: 5 percent of income exceeding Rs 2.5 lakh

> Income from Rs 5 lakh to Rs 10 lakh: 20 percent of income exceeding Rs 5 lakh + Rs 12,500

> Income above Rs 10 lakh: 30 percent of income exceeding Rs 10 lakh + Rs 1,12,500

These rates were applicable under the new tax regime, which was introduced to make the tax structure simpler by reducing exemptions and deductions. The old tax regime, which allowed taxpayers to avail of deductions for investments like PPF, life insurance premiums, and home loans, was also left in place for those who wanted to claim these benefits.

What to expect in Union Budget 2025: Income tax slabs

As the Budget 2025 approaches, experts are already weighing in on the expected changes to income tax slabs. Market analyst Dilip B. Desai, Founder and Chairman of DHC International & Desai Haribhakti Consulting, shares his insights on what the common man can expect from the upcoming budget.

Dilip B. Desai, Chairman DHC International & Desai Haribhakti Consulting

Will the government increase the income tax exemption limit?

One of the most anticipated changes is an increase in the income tax exemption limit. In 2024, the government raised the basic exemption limit to Rs 2.5 lakh, but rising inflation and increased living costs have made it necessary to re-evaluate this threshold. Many believe that an increase in the exemption limit would provide much-needed relief to middle-class taxpayers.

What Desai says:

"The government may increase the basic exemption limit to provide more disposable income in the hands of the middle class. This will encourage people to spend more, which could help boost economic growth."

Will there be a simplified tax structure?

The current tax structure, especially for those earning between Rs 5 lakh and Rs 10 lakh, has been described as complex and burdensome. Experts believe that introducing a new tax slab or restructuring the existing ones could make tax compliance easier while reducing financial stress for middle-class taxpayers.

What Desai says:

"A tax rebate of Rs 12,500 is available for individuals earning up to Rs 5 lakh under the old regime and Rs 25,000 for income up to Rs 7 lakh under the new regime. The outer ceiling may be increased to Rs 7 lakh and Rs 10 lakh for the old and new regimes, respectively."

What incentives can the middle class expect?

As the largest taxpaying group, the middle class is expected to receive some form of relief in Budget 2025. Potential measures include higher deductions for savings, home loans, and insurance premiums, which would reduce taxable income.

What Desai says:

"Under the new tax regime, deductions under Section 80C (insurance premium & EPF) and Section 80D (health insurance) are not allowed. To boost these sectors and improve savings, the government may introduce deductions in a phased manner. Additionally, HRA (House Rent Allowance) benefits may be introduced for metro cities to account for the high cost of living."

Will senior citizens get tax relief?

Senior citizens often struggle with rising healthcare costs and fixed or limited sources of income. There has been increasing demand for higher exemptions and deductions to provide financial relief to retirees.

What Desai says:

"The present basic exemption limit for senior citizens is Rs 3 lakh. If the government increases the basic exemption for others, a simultaneous increase for senior citizens is likely. Additionally, the limit for Section 80D (medical insurance premium for senior citizens), currently Rs 50,000, could be increased to provide greater relief."

Will budget 2025 introduce tax schemes for women entrepreneurs?

As part of the government's focus on women's empowerment, many hope that new tax incentives for women entrepreneurs will be introduced. These could include tax credits, subsidized loans, or reduced-interest business financing.

What Desai says:

"Targeted incentives and schemes aimed at making credit more accessible to women entrepreneurs and self-employed women may be introduced."

Will there be corporate tax reforms?

Apart from individual tax reforms, corporate tax policies may also see changes. Many experts predict reductions in corporate tax rates, particularly for small businesses, to boost job creation and encourage investment.

What Desai says:

"Small businesses and MSMEs are among the biggest job creators. To stimulate employment, the government must provide incentives to MSMEs. This could be achieved by reducing tax rates, simplifying compliance requirements, and offering targeted incentives to help small businesses grow."

What's the consensus?

Desai, a keen observer of India's economic policy, emphasises that the government must strike a balance between tax relief and economic growth. He believes Budget 2025 should focus on long-term, sustainable measures rather than short-term fixes.

Key takeaways from Dilip Desai:

✅ "For sustainable economic growth, it is crucial to introduce measures that have a long-term impact and uplift the business community."
✅ "Tax is a direct cost for individuals and businesses. Providing targeted relief to the business class may improve the economy and lead to overall growth."
✅ "This is the first full-year budget of Modi 3.0, and it should help boost the economy while laying the foundation for long-term sustainable growth."

As India awaits the Union Budget 2025, income tax reforms remain a highly anticipated area of focus. While the government has made incremental changes over the years, taxpayers - particularly the middle class, senior citizens, and small businesses - are hoping for bigger, bolder reforms this year.

With inflation concerns, economic recovery, and employment growth on the agenda, all eyes are on the Finance Minister to deliver a budget that balances fiscal responsibility with much-needed tax relief.