Budget 2025: Expectations Of Individual Taxpayers In Terms Of Personal Tax

By Saraswathi Kasturirangan, Priyanka Bhutada and Abha Agarwal

Expanding taxpayers’ base, enhancing ease of administration, and simplifying compliances have been the areas of focus for the government in recent times.

The most significant of these has been the introduction of the simplified tax regime effective Financial Year 2020-21, followed by several changes to enhance the attractiveness of the same. For FY 2023-24, around 72% of taxpayers had opted for the simplified tax regime while 28% continued with the old tax regime as of 31 July 2024.

The below example provides an understanding of the impact of the simplified tax regime across various income levels.

Clearly, the simplified tax regime is beneficial at income levels where significant deductions and exemptions are not claimed as well as for substantially high-income groups. The category of taxpayers who fall in between these two, still favour the regular tax regime, since their investments are driven by exemptions and deductions, and the tax rates under the simplified tax regime are not attractive enough to compensate for the same.

Some specific areas where there is an expectation from the common man, is to make the simplified tax regime more attractive across all income levels.

One such specific area could be to extend house property related deductions under the simplified tax regime. There is an expectation of extending the deduction for interest paid on home loans to the simplified tax regime as well. Additionally, to make home ownership more affordable, the said limit can be increased to INR 3,00,000, currently capped at INR 2,00,000 for self-occupied properties.

Further, the expectation of individual taxpayers to enhance post tax income is at an all-time high. For instance,

• Fixed deposits are a preferred investment choice for taxpayers with a low-risk appetite, including senior citizens and those seeking stable returns. However, interest on fixed deposits is currently taxed at the individual’s marginal rate, which can be significantly higher than the capital gains tax rate of 12.5%. Taxpayers expect the government to align the tax rate on fixed deposit interest with the capital gains tax rate to encourage more investments in this secured asset class.

• Long term capital gains are not taxable up to the tax-free exemption limit of INR 125,000 p.a. There is similar expectation in respect of short capital gains as well, where the tax rate on short term capital gains arising from the sale of listed shares and securities, was enhanced to 20% from the erstwhile rate of 15%. This could encourage further investments in the capital market while imposing taxes on gains that exceed the specified limit.

Additionally, taxpayers under the regular tax regime expect that interest on all bank deposits, including fixed deposits, be included under Section 80TTA, with the limit increased from INR 10,000 to INR 50,000, aligning it with the deductions available to senior citizens.

There is also an expectation of extending the deduction which was available under the erstwhile Section 80EEB providing a deduction of up to INR 1,50,000 per annum on interest for loan taken to purchase electric vehicles (EVs). Taxpayers expect the government to extend the benefit to loans availed even after 31 March 2023 both under the regular tax regime and the simplified tax regime to promote EV adoption and make EVs more affordable, support the growth of the EV industry, and align India with global sustainability efforts for a greener future.

As the government continues to focus on inclusive growth and innovation, individual taxpayers are looking to the Union Budget 2025 for relief and reforms that will simplify the tax process and provide more disposable income. By addressing these key expectations, the government can lay the foundation for a more efficient, tax-friendly India and support the financial well-being of individual taxpayers, particularly the middle class, who play a critical role in driving economic growth.

Saraswathi Kasturirangan is Partner with Deloitte India, Priyanka Bhutada is Manager and Abha Agarwal is Deputy Manager with Deloitte Haskins and Sells LLP.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)