Finally, Tax Relief? Middle-Class Hopes Pinned on Budget 2025
Tax Relief: As the Budget approaches, there is a growing sense of anticipation for potential relief in income tax rates, especially as the middle-class taxpayer grapples with the challenges of rising prices. According to a report by ToI on January 27, the government is aiming to maintain the new tax regime without additional concessions, but is considering adjustments to thresholds and slab structures leading up to Budget 2025.
Income tax rates are typically one of the final elements to be finalized in the Budget process. In the lead-up to this year’s Budget presentation on Saturday, various stakeholders, including companies and economists, have been advocating for a reevaluation of tax rates to ease the burden on taxpayers, particularly the middle class, amidst sluggish demand. Last year, Finance Minister Nirmala Sitharaman raised the standard deduction for salaried individuals to Rs 75,000 and revised tax slabs, promising a net gain of Rs 17,500 for taxpayers.
Expected changes in standard deduction and tax slabs
Ahead of the upcoming Budget, discussions within the government have focused on further increasing the standard deduction to provide significant relief to all taxpayers. There is also mounting pressure to allow middle-class consumers to retain more of their income, leading to proposals for reducing tax liabilities across various income brackets, including higher earners.
Calls for increased concessions on health and pension spending
In addition to refining tax rates in the new regime, there are calls for enhancing concessions for essential expenditures such as health insurance and pension contributions. This is particularly important in India, where individuals, other than government employees, often lack adequate safety nets. A report from the State Bank of India (SBI) suggests health insurance exemptions of up to Rs 50,000 and National Pension Scheme (NPS) contributions of up to Rs 75,000 or even Rs 1 lakh.
Potential Revenue Implications of Tax Rate Changes
If the government decides to maintain the peak tax rate at 30% while implementing a 15% levy for individuals with taxable incomes between Rs 10-15 lakh (instead of the current 20% for those earning Rs 12-15 lakh), it could lead to an annual revenue loss ranging from Rs 16,000 crore to Rs 50,000 crore. Additionally, reducing the peak rate from 30% to 25% for those earning Rs 15 lakh or more, along with proposed exemptions, could potentially result in a revenue impact between Rs 74,000 crore and Rs 1.1 lakh crore.
In a third scenario, where both the peak rate is decreased to 25% and a 15% levy is imposed for individuals earning between Rs 10-15 lakh, in addition to health and NPS exemptions, the estimated revenue loss could vary from Rs 85,000 crore to Rs 1.2 lakh crore.
Official Stance on Concessions and Exemptions
Despite ongoing discussions, government officials are hesitant to introduce concessions and exemptions, fearing that it may cause the new tax system to resemble the previous one over time. However, they suggest that providing taxpayers with the option to choose between regimes could be advantageous, allowing individuals to select the approach that aligns best with their financial interests.
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