Budget 2025: 6 Key Income Tax Related Changes Which May Be Announced On February 1

The Union Budget for FY 2024-25 will be presented on February 1, 2025. Stakeholders from various walks of life are awaiting the presentation of the Union Budget. The Union Budget for 2025 is the second budget to be presented under the Modi 3.0 regime.

Experts believe that the Union Budget 2025 is likely to have many tax-related reforms in store for the salaried class. Mumbai-based tax and investment expert Balwant Jain told Outlook Money about some crucial tax-related changes which could be introduced as a part of Budget 2025. Here’s a look at some of the key changes the government might introduce:

Enhancement Of Income Tax Slabs

Jain said that the highest income tax rate of 30 per cent is charged on all income above Rs 10 lakh under the old tax regime and all income above Rs 15 lakh under the new tax regime. He added that the limit for the old tax regime was fixed in 2012, given the inflation rate which is near 6 per cent in 2025, there’s a need to adjust the highest tax bracket to an annual income of Rs 21 lakh and above. He added that subsequently all other tax brackets should also be enhanced to factor in increased inflation.

“Presently any income beyond 10 lakhs is taxed at 30 per cent under the old tax regime and beyond 15 lakh under the new tax regime. This limit was fixed in 2012. So if you apply the inflation of 6 per cent it should have gone up to 21 lakhs. So ideally the government should enhance the tax slab on which the maximum marginal rate should be applied. So it should be 20 lakhs for the old tax regime and 30 lakhs for the as well as the new tax regime. And accordingly, the other slabs also may be enhanced,” Jain said.

Here’s a look at the tax slabs under the new tax regime:

Up to Rs 3 lakh - Nil: 

Over Rs 3 and Below Rs 7 lakh - 5 per cent

Over Rs 7 lakh and Below Rs 10 lakh - 10 per cent

Over Rs 10- and Below Rs 12 lakh - 15 per cent

Over Rs 12 lakh and Below Rs 15 lakh - 20 per cent

Above Rs 15 lakh - 30 per cent

Percentage Based Standard Deduction

Jain said that he also expects the government to increase the standard deduction limit under both tax regimes to be increased. He added that factoring in inflation Rs 50,000 becomes a very small amount. The standard deduction limit under the old tax regime is Rs 50,000 and the standard deduction limit for the new tax regime is Rs 75,000.

“So Rs 50,000 is a very small amount looking at the expenses which a salaried person has to incur for commuting between office and his residence as well as for other expenses because the salaried guy does not have any other deduction,” Jain said.

Jain added that instead of having a common limit for standard deduction across tax slabs, the deduction should be given as a fixed percentage of the salary earned by the taxpayer.

“The government is partial towards people who opt for the new tax regime. For people opting for the new tax regime higher standard deduction is available. I feel that instead of giving the standard deduction as a fixed sum or amount it should be given as a fixed percentage of the salary subject to a maximum amount,” the tax expert said.

Increased Limit For 80C Deductions

Taxpayers who opt for the Old Tax Regime can avail of a deduction of up to Rs. 1.5 lakh from their total taxable income under Section 80C of the Income Tax Act. The deduction can be claimed for expenditures such as life insurance premiums, tuition fees, and contributions to provident funds. Jain said that the government is likely to increase the limit for 80C deductions as it was earlier increased from Rs 1 lakh to Rs 1.5 lakh in 2014 due to rising inflation. He added that the government should factor in the 6 per cent inflation and increase the 80C limit to Rs 3 lakh to Rs 3.5 lakh.

“The initial 1 lakh limit was fixed in 2003 and which was raised to Rs 1.5  lakh in 2014.  So if you calculate the annualized increase it comes to around 2 per cent which is far far lower than the average inflation during this period. So looking at this 6 per cent inflation the 80C deduction limit should at least be increased to Rs 3 to Rs 3.5 lakh,” Jain told Outlook Money.

Separate Tax Section For Home Loan Repayment

Home loan repayment is one of the expenses for which deductions can be claimed under the 80C. However, since the limit is Rs 1,50,000 the limit is often met by availing deductions for expenses such as insurance premiums and provident fund deductions. Jain added that the government should merge the 80C and 80D together and create a separate section under the Income Tax Act to avail deductions on home loan repayment.

“The government should carve out a separate deduction for home loan repayment. Looking at the fact that the prices of properties have gone up significantly, the 80C deduction gets adjusted due to the mandatory expenses like life insurance premium, school fees provident fund deduction, etc., and the repayment of home loans overthrows this 80C limit. So the government should combine this 80C and 80D under one section and carve out a separate deduction for a home loan repayment,” Jain said.

Increased Import Duty On Gold

As a part of the Union Budget for 2024, the import duty on gold in India was reduced from 15 per cent to 6 per cent. Jain said that the import duty was reduced to lower the government’s liability towards Sovereign Gold Bondholders as the redemption date of their investment was nearing in 2024. He added that a reduction in the import duty on gold lowered the price of gold on the day of the redemption.

“Few of the sovereign gold bonds were due for redemption immediately after the July 23 budget day. The redemption was to be done at the market average market price of the preceding peak. So the government would have incurred huge liability looking at the appreciation in the gold prices over the years. So the government played a trick by reducing the gold duty. They effectively reduced the market price and lowered their liability towards the sovereign gold bond holders,” Jain said.

Jain said that the government is likely to restore the 15 per cent import duty this year keeping in mind the quantum of gold which has been imported.

“So the government may probably restore the import duty on gold and looking at the quantum of gold imported subsequent to that date, the government may restore the import duty on gold to the earlier level,” Jain said.

Changes In Tax Treatment Of NPS Corpus

The Employees Provident Fund (EPF) is tax free upon withdrawal at the time of superannuation (60 years of age). On the other hand, the corpus for NPS is taxed if the amount withdrawn in a lump sum is over 60 per cent. Jain said that he expects the government to bring the tax treatment for both EPF and NPS at par and make the withdrawal at the time of superannuation tax exemption.

“For NPS, I would expect the government to put the NPS corpus after reaching the age of superannuation after 60 at par with EPF. Since the employee gets the entire corpus accumulated under EPF tax-free after his retirement the same tax treatment should be given for NPS corpus,” Jain said.