Tax Relief and Benefits: What Income Taxpayers Desire in Budget 2025?

Since budget season is here again, the time is an important one for businesses and people alike, since everyone waits with bated breath for changes in policies, taxes and spending. While much is expected from this Budget 2025 to simplify tax laws and increase taxpayers’ numbers but people are mostly hoping for this that budget will bring some relief in order to reduce their income tax burden.

Some Changes that might be included in the Tax Proposals for Budget 2025

To make it easier and more attractive for taxpayers to file income tax returns and comply with tax laws, the government announced a new tax regime in FY 2020-21. This new regime is beneficial for most taxpayers. In fact, more than 70% of individual taxpayers opted for the new tax regime in FY 2023-24, particularly those with taxable incomes under Rs.7 lakhs, as it offered lower tax rates and simplified compliance.

These taxpayers benefited from a NIL tax liability due to the rebate provided under Section 87A, taxpayers with taxable incomes of above Rs.5 crore enjoyed a lower tax rate of 39% (which included surcharge and cess) under the new tax regime, compared to 42.744% in the old tax regime.

For FY 2023-24, while 12.79 crore individuals were registered on the income tax portal, only 8.68 crore individuals filed their income tax returns.

Changes to be consider to expand the reach of the New Tax Regime

The standard deduction for salaried taxpayers could be increased from Rs.75000 to Rs. 1 lakh. In Budget 2024, it was increased from Rs.50,000 to Rs.75,000. The income tax slabs should be reduced from six to three and the highest tax rate of 30% should be replaced by 25% tax rate, bringing it in line with the general corporate tax rate.

Extend the tax rebate under Section 87A to taxpayers with taxable income up to Rs.10 lakh, instead of the current Rs.7 lakh limit. To support the government’s ‘Housing for All’ initiative, a deduction for interest on home loans up to Rs.2 lakh for self-occupied properties could be announced in the new tax regime. Currently, this deduction is only available under the old tax regime.

Since the government is focusing on the new tax regime, it’s doubtful there will be big changes in the old tax regime. However, if the old tax regime remains an option for a few more years, some important changes that taxpayers have been hoping for could be considered.

Tax Benefits on Savings Accounts and Fixed Deposits

When the interest rates of savings accounts are low and inflation reduces the value of money, people usually move their money to fixed-term deposits to get a better return. The government can extend the tax deduction under Section 80TTA, which is currently available for interest from savings accounts, to interest from term deposits as well, to promote more savings. They can also raise the limit of deduction to Rs.50,000 as that of benefit received by senior citizens under Section 80TTB.

Double Taxation on NPS, SAF and EPF

If an employer contributes more than Rs.7,50,000 in a year to an employee’s EPF (Employees’ Provident Fund), SAF (superannuation fund), or NPS (National Pension System), the excess amount is taxed in the year it is contributed. Later, at the time when the employee withdraws from those funds, the withdrawal amount would be taxed also if certain conditions such as 5 years of continuous service are not met. This causes double taxation because the same income is taxed during contribution and at the time of withdrawal. There should be a specific rule to exempt such income at the withdrawal stage if it has already been taxed earlier. Without this, double taxation goes against the purpose of the law.

Other Changes

The due date for filing belated or revised tax returns should be extended beyond December 31.

Employers should be allowed to consider Foreign Tax Credit (FTC) while calculating TDS.