Budget 2025: Enhanced 80C Limit, Standard Deduction Among Key Expectations Of Taxpayers

It is that time of the year when the common man expects the finance minister to turn messiah and bring some good news on the tax front. In the last few years, we have seen the government make some major announcements, most of which have been geared towards a shift to the new tax regime. These included making the new tax regime the default regime and also increasing the standard deduction under the new tax regime to Rs 75,000.  

Let’s take a look at some of the key aspects on which taxpayers expect the finance minister to provide some relief in Budget 2025.  

Raising Threshold Limit Under Section 80C Unlikely, But A Possibility  

For long, taxpayers have called for raising the available deduction limit under Section 80C of the Income-tax Act, 1961. 

Says Rahul Singh, senior manager, Taxmann, tax and corporate advisor: “Recent budgets focus on encouraging taxpayers to transition to the new tax regime under Section 115BAC, which allows only a few deductions. Increasing the Section 80C limit would make the old tax regime more appealing, which seems contrary to the government’s current approach.”  

However, while the government is actively promoting the new tax regime, which simplifies the tax structure by offering lower tax rates and reducing the reliance on deductions, it is still crucial to consider revising the Section 80C deduction limit. 

Despite the push towards the new regime, many taxpayers, particularly those who continue to prefer the old regime, rely on deductions under Section 80C to manage their tax liabilities and encourage savings. 

The current limit of Rs 1.5 lakh set almost a decade ago, is insufficient given the rising costs of living, inflation, and taxpayers’ increasing financial responsibilities.  

Further, taxpayers are increasingly seeking higher limits to match their growing investments in tax-saving schemes, such as the Public Provident Fund (PPF), equity-linked savings scheme (ELSS), life insurance premiums, and home loan repayments. 

Says Suresh Surana, a Mumbai-based chartered accountant: “Although the government is focused on simplifying the tax process with the new regime, maintaining and enhancing the existing deductions in the old regime remains a critical tool for supporting taxpayers, particularly in challenging economic times. Therefore, revising the Section 80C limit to Rs. 2.5 lakh would be a balanced approach, supporting both financial growth and tax relief, regardless of the tax regime chosen.” 

Increase In Standard Deduction 

Under Section 16(ia), the current standard deduction is set at Rs 75,000 or the salary amount (whichever is lower) for taxpayers opting for the default tax regime, and Rs 50,000 for those under the old tax regime.  

However, many employees face escalating expenses, including costs related to skill development, while existing exemptions under Section 10 have become less relevant over time.  

Says Surana: “Increasing the standard deduction to Rs 75,000 for the old tax regime and Rs 1 lakh for the new tax regime could provide meaningful relief to salaried individuals and allow them to retain a greater portion of their income. Alternatively, linking the standard deduction to the cost inflation index (CII) would ensure regular adjustments aligned with inflation, thus offering sustainable support to taxpayers while maintaining revenue neutrality.” 

Special Tax Slabs For Senior Citizens 

There is a possibility that senior citizens may be granted special tax slabs under the new tax regime in the upcoming Budget 2025. At present, under the new tax regime, senior citizens (aged 60 and above) are subject to the same tax slabs as any other taxpayer, as opposed to the old tax regime, wherein senior citizens enjoy a higher exemption limit.  

“However, given their increasing financial needs, particularly with respect to healthcare and retirement savings, there have been discussions about offering them targeted relief. The government could consider raising the basic exemption limit for senior citizens under the new regime. For instance, while the current exemption limit is Rs 3 lakh for individuals in the new tax regime, it may be increased to Rs 4 lakh for senior citizens, offering immediate tax relief,” says Surana. 
 
However, Singh says that the new tax regime does not differentiate between individuals based on age, and treats individuals and senior citizens alike.  

“Media may report suggesting an exemption for incomes up to Rs 15 lakh may specifically apply to senior citizens opting for the new tax regime,” he adds.  

 Increasing Income Threshold  

At present, the new tax regime allows individuals with taxable income of up to Rs 7 lakh to pay no tax, owing to the rebate provided under Section 87A of the Income-tax Act, 1961. There is ongoing speculation about the possibility of increasing this threshold to Rs 10 lakh in the upcoming Budget 2025.  

Media reports suggest that the Bharatiya Mazdoor Sangh (BMS), a trade union affiliated with the Rashtriya Swayamsevak Sangh (RSS), has proposed to “raise the income threshold for income tax to Rs 10 lakh with exemptions existing as of now”. 

Under the new tax regime for FY 2024-25, lower tax rates are offered without most deductions and exemptions, making the rebate under Section 87A crucial in ensuring zero tax liability for incomes up to Rs 7 lakh. Enhancing this threshold to Rs 10 lakh could provide substantial relief to middle-class taxpayers, allowing them greater disposable income and aligning with the government’s objectives of stimulating economic growth and consumer spending. 

While this enhancement could promote wider adoption of the new tax regime, implementation of such a proposal would depend on critical factors such as fiscal priorities, revenue constraints, and prevailing economic conditions. Any increase in the rebate would need to balance taxpayer relief with potential revenue implications for the government. 

Says Surana: “However, it is likely that such changes, if introduced, would be exclusive to the new tax regime to encourage its adoption over the traditional system of the old tax regime. As Budget 2025 approaches, taxpayers remain hopeful for meaningful reforms that address the financial challenges faced by middle-income families while fostering economic growth.” 

Relief For The Middle Class  

The general consensus is that middle-class salaried employees in India are always at the receiving end.  

“The government can reduce the tax burden on India’s middle-class salaried employees by introducing exclusive deductions for education, medical expenses, and work-from-home costs,” says Abhishek Soni, CEO, Tax2Win, an income tax portal.