Budget 2025: Personal Tax Reforms benefited Middle-Class, Know How?

The Union Budget 2025 presented by Finance Minister has introduced several changes in personal taxation with the vision of boosting growth, inclusive development and enhancing disposable incomes in hand. These changes intend to simplify tax compliance, enhance voluntary participation, and reduce the burden on taxpayers.

Improvements in the Concessional Tax Regime

The concessional tax regime (commonly know as new tax regime), introduced in 2020 as a replacement for the regular tax structure, remains an area of focus for reforms. Budget 2025 proposes the following tax slabs and rates under this regime:

The basic exemption limit of income increased to Rs.4,00,000. New tax rate of 25% introduced under new tax regime and revision done in tax slab. It provides additional relief to taxpayers. The new tax slab is given below:

This new slab brings an additional slab, offers a more progressive structure of taxation and gives better segmentation across income levels. It simplifies the compliance further.

Rationalization of TDS and TCS Limits

To ease the tax compliances further, the Budget proposes to raise the threshold limit for Taxes Deducted at Source (TDS) and for Taxes Collected at Source (TCS).

For the elderly, the exemption threshold on interest income liable for TDS has been enhanced to Rs.1,00,000 from Rs.50,000, and other taxpayers’ exemption threshold has been increased to Rs.50,000 from Rs.40,000. Likewise, for those liable to deduct TDS on dividend income of equity share and units of mutual fund, the exemption threshold has been raised to Rs.10,000 from Rs.5,000. Relief on Foreign Remittances and Loans The Budget has also given relief on foreign remittances under the Liberalized Remittance Scheme (LRS). The threshold for TCS on foreign remittances has been increased from Rs.7 lakhs to Rs.10 lakhs. Further, remittances for education loans from specified financial institutions will be exempt from TCS, which will ease the financial burden on students studying abroad.

Provisions for Voluntary Compliance

This aims to promote voluntary tax compliance as the time allowed for filing revised returns has been increased from 24 months to 48 months from the end of the relevant assessment year. This allows a taxpayer more time to correct his errors and make accurate income reports without being subject to legal sanctions.

Loose Norms of Self-Occupied Properties

In a step to alleviate the burden of compliance, the Budget suggests allowing a taxpayer to declare the annual value of up to two self-occupied properties as ‘Nil’ without any restrictions. It does justice to people owning multiple houses and also tackles their issues in general.

Proposed reforms in tax slabs, increase in the threshold of TDS and TCS, and relief on foreign remittances, will be helping the taxpayers by increasing disposable income, mainly the middle class, who would, in turn, increase consumption. This is a sure-shot growth booster.

A new Income Tax Bill focusing on simplifying the existing tax laws, using simple language, is in the pipeline. This will be introduced the following week and will lead to better understanding, greater certainty, and less litigation.