Budget 2025: No tax for up to Rs 10 lakh annual income; 25% tax slab for these income groups likely

Finance Minister Nirmala Sitharaman will present India's Union Budget for the financial year 2025-26 on February 1. With widespread interest across the country, many anticipate possible tax concessions to the current tax regime as India prepares for Budget 2025.

Tax Reforms On the Horizon?

There is vigorous speculation surrounding potential initiatives aimed at easing tax burdens. Reports from Business Standard, citing government insiders, suggest significant alterations in the new tax regime.

There is speculation that annual incomes up to Rs 10 lakh might become tax-free, while a new 25% tax rate could be introduced for incomes ranging between Rs 15 lakh and Rs 20 lakh.

A government source, as per BS, remarked, “We are evaluating both options. If our budget allows, we may implement both measures – making income up to Rs 10 lakh tax-free and introducing a 25% slab for income between Rs 15 lakh and Rs 20 lakh.”

Financial Implications

If these measures come into effect, the government may take revenue loss of Rs 50,000 crore to Rs 1 lakh crore resulting from this relief in income tax. However, this is an either-or situation. Either, the government will fully exempt Rs 10 lakh income from tax or introduce the revised 25% tax rate to the Rs 15 lakh- Rs 20 lakh income bracket.

Current Tax Scenario

Currently, individuals with an annual income exceeding Rs 15 lakh experience a 30% tax rate. In contrast, incomes up to ₹7.75 lakh are exempt from tax, factoring in the ₹75,000 standard deduction.

Expert Recommendations

The Global Trade Research Initiative (GTRI) advises adjusting tax exemptions in line with inflation. Their suggestions include increasing the tax-free threshold to Rs 5.7 lakh. They also recommend enhancing fixed deductions such as the savings interest deduction, proposed to rise from Rs 10,000 to Rs 19,450 by 2025.

The deduction for insurance premiums and Provident Fund (PF) contributions could also increase from Rs 1.5 lakh to Rs 2.6 lakh. Such adjustments seek to maintain the real value of taxpayer benefits amidst inflationary pressures.