Finance Minister Nirmala Sitharaman may present the country’s upcoming budget on February 1. There is ongoing speculation that the central government might introduce significant tax exemptions for the general public in the upcoming Union Budget 2025. It is anticipated that individuals earning up to Rs 15 lakh annually could benefit from tax deductions. This potential tax exemption could lead to an increase in disposable income, thereby boosting consumption levels.
According to some media sources, the government is contemplating modifications to the new income tax framework established in the financial year 2020-21, which has gained popularity among over 70 percent of taxpayers due to its straightforward design.
What are the current tax brackets?
At present, under the new tax regime, income up to Rs 3 lakh is exempt from tax, while earnings between Rs 3 lakh and Rs 6 lakh are taxed at 5%. Income from Rs 6 lakh to Rs 9 lakh is taxed at 10%, from Rs 9 lakh to Rs 12 lakh at 15%, from Rs 12 lakh to Rs 15 lakh at 20%, and any income exceeding Rs 15 lakh is taxed at 30%. The standard deduction of Rs 75,000 means that individuals with an income of up to Rs 7.75 lakh do not have to pay any tax. Additionally, those earning up to Rs 7 lakh will not be liable for any tax.
What changes might occur in the tax brackets?
Reports indicate that the basic exemption threshold could rise from Rs 3 lakh to Rs 4 lakh. Additionally, there may be modifications to other tax brackets. For instance, the 5% bracket might encompass income ranging from Rs 4 lakh to Rs 7 lakh, making the tax structure more advantageous for individuals earning up to Rs 14 lakh.
Why is a reduction possible?
Sources suggest that the government aims to alleviate the financial strain on those earning between Rs 13-14 lakh per year, particularly in urban areas where inflation has diminished purchasing power. The primary goal of this adjustment is to offer relief to urban taxpayers, who are facing increasing inflation and play a vital role in the economy. Experts believe that raising the tax slab limit by Rs 1 lakh could significantly lessen the tax burden, encouraging greater consumer spending.
Steady growth in tax revenue
Personal tax collections have surged by 25% to Rs 7.41 lakh crore from April to November in FY 2025, positioning the government favorably to implement these changes. Unlike corporate tax, personal tax has consistently surpassed expectations, contributing significantly to the government’s finances. This trend in tax collection also suggests the possibility of tax exemptions.