Budget 2025 Expectations: What Changes to Expect for Tax Slabs and Rates?

Union Finance Minister Nirmala Sitharaman is going to present the budget for FY 2025-26 on 1 February 2025, at 11 AM. Before the budget, the Indian middle class and taxpayers are hoping that this budget will bring some significant tax breaks and relief. People expect changes in the income tax slabs under the new tax system, along with an increase in the standard deduction.

People are anticipating certain changes, and the government might look into various options to implement in the Union Budget 2025-26:

Relief for the poor and middle-class in Budget 2025-26

The Prime Minister called upon Goddess Lakshmi, seeking her blessings for the welfare of the poor and middle class. This has sparked speculation about whether the upcoming Budget will offer significant tax relief for the middle class and taxpayers. There are hopes that the government will make annual incomes of up to Rs.10 lakh tax-free under the new tax regime. Taxpayers are also requesting the introduction of various exemptions under the new system, including home loans, life and health insurance premiums, NPS, and more.

Scope of Pradhan Mantri Awas Yojana to be Expanded in Budget 2025-26

The Finance Minister Nirmala Sitharaman, in her speech to Parliament at the start of the Budget session for 2025-26, President Murmu announced that the government plans to extend the Pradhan Mantri Awas Yojana to provide homes for 3 crore more families. PMAY is a scheme that offers interest subsidies on loans for buying homes, land, or building houses, aimed at helping lower-income groups and people earning below a certain income limit.

Potential Increase in Income Tax Deductions for Life Insurance Premiums

Section 80C of the Income Tax Act allows taxpayers to invest up to Rs.1,50,000 to get tax deductions. These investments can be made in things like ELSS, PPF, life insurance premiums, and other similar options.

An expert says that as the Union Budget 2025 approaches, we expect policies that will strengthen India’s financial system and help speed up progress toward becoming a developed nation by 2047.

FM Nirmala Sitharaman to Increase the Threshold under the Income Tax Act for Children’s Education

Currently, the tax benefits for children’s education under the Income Tax Act are as follows:

• Children’s Education Allowance which is Rs.100 per month for each child, with a maximum of 2 children.
• Hostel Expenditure Allowance which is Rs.300 per month for each child, with a maximum of 2 children.

Potential Changes to the Tax-Free Corpus Withdrawal Limit of 60%

Currently, up to 60% of the total amount withdrawn from the NPS (National Pension Scheme) as a lump sum is completely tax-free. For example, if your NPS balance is Rs.10,00,000, you can withdraw up to Rs.6,00,000 without paying any tax on it.

Expectations for Changes in Dividend Taxation from the Union Budget 2025-26

Currently, investors need to pay tax on the dividends they receive, which can be especially tough for those in higher tax brackets. If an individual dividend income is more than Rs.5,000, a 10% TDS (Tax Deducted at Source) is charged. However, if the person does not provide their PAN, the TDS rate increases to 20%.

Potential Increase in Rebates Under Section 87A of the Income Tax Act in Old and New Tax Regimes

Taxpayers earning up to Rs.5,00,000 per year can get a tax rebate under the old tax system, while those earning up to Rs.7,00,000 can get a rebate under the new tax system. This means that if their income is within these limits, they won’t have to pay any taxes.

Income Tax Deductions for Home Loan Owners Under the New Tax Regime

The old tax system lets homeowners claim deductions on the interest paid on home loans for their residential property, as well as on the principal amount under Section 80C of the Income Tax Act. However, under the new tax system, deductions are only available for rental properties.