30% income tax slab squeezing India’s middle class dry. Can Budget 2025 offer relief? | Mint
Source: Live Mint
As we approach the Union Budget 2025, the one expectation that keeps buzzing strongly is whether Finance Minister Nirmala Sitharaman will lower the personal tax rates. While many changes have been introduced to ease taxpayer compliance – pre-filled tax returns – there has hardly been any substantial tax saving for individual taxpayers.
Sample this: Imagine receiving a salary hike of ₹5 lakh, only to realise that nearly ₹2 lakh will go towards taxes. As per the slab rates under the new tax regime, a salary of ₹25 lakhs and ₹30 lakhs would result in taxes of ₹4,57,600 and ₹6,13,600, respectively — around 31.2% of the income. This means that for incomes above ₹15 lakhs, taxpayers pay at least 31.2% in taxes and more if the surcharge applies.
So, taxpayers typically in the lower range of the 30% income tax slab are hit hardest, as their post-tax income often falls short of keeping up with inflation in India. Added to these woes are the indirect tax levies, which are based on consumption. The combined impact of the two levies adversely impacts taxpayers’ purchasing power.
Tax on income over ₹15 lakh
Let us understand this a bit more by comparing the current taxes payable by individuals earning incomes at different levels.
| Particulars |
Old Tax Regime |
Simplified Tax Regime |
Old Tax Regime |
Simplified Tax Regime |
Old Tax Regime |
Simplified Tax Regime |
Old Tax Regime |
Simplified Tax Regime |
|
Annual Salary of 15 Lakh |
Annual Salary of 17 Lakh | Annual Salary of 50 Lakh |
Annual Salary of 55 Lakhs |
|||||
| Salary | 15,00,000 | 15,00,000 | 17,00,000 | 17,00,000 | 50,00,000 | 50,00,000 | 55,00,000 | 55,00,000 |
| : Std. deduction | 50,000 | 75,000 | 50,000 | 75,000 | 50,000 | 75,000 | 50,000 | 75,000 |
| Gross Taxable Salary | 14,50,000 | 14,25,000 | 16,50,000 | 16,25,000 | 49,50,000 | 49,25,000 | 54,50,000 | 54,25,000 |
| Net Taxable Salary | 14,50,000 | 14,25,000 | 16,50,000 | 16,25,000 | 49,50,000 | 49,25,000 | 54,50,000 | 54,25,000 |
| Tax | 2,47,500 | 1,25,000 | 3,07,500 | 1,77,500 | 12,97,500 | 11,67,500 | 14,47,500 | 13,17,500 |
| Surcharge | – | – | – | – | – | – | 1,44,750 | 1,31,750 |
| Health and Education Cess @4% | 9,900 | 5,000 | 12,300 | 7,100 | 51,900 | 46,700 | 63,690 | 57,970 |
| Total Tax Liability | 2,57,400 | 1,30,000 | 3,19,800 | 1,84,600 | 13,49,400 | 12,14,200 | 16,55,940 | 15,07,220 |
The above table shows that an employee earning ₹15 lakhs pays ₹1,30,000 in taxes under the new tax regime after standard deductions. If his income jumps by ₹2 lakhs (becomes ₹17 lakhs), the tax liability also increases to ₹1,84,000 — by over ₹50,000 more. The tax burden rises sharply once the surcharge kicks in incomes over ₹50 lakhs, leaving taxpayers with less take-home income as earnings increase.
Tax rate changes for individual income tax since 2020
The most significant change for individuals was the introduction of the new tax regime. The finance minister unveiled the simplified or the new tax regime in 2020, offering taxpayers the option to pay lower taxes but to forego most deductions and exemptions typically available for salaried taxpayers. In 2020 for a salary level of INR 15 lakhs, a taxpayer applying the simplified tax regime would save approximately ₹75,000 if he had no deductions or exemptions. This tax difference currently between the two regimes is approximately ₹1,26,000, at an income level of ₹15 lakhs.
The other change impacting individuals is the levy of surcharge, which starts at 10% for an individual having a total income of ₹50 Lakhs and above. The maximum surcharge levy is 25% for a total income of ₹2 crore and above from 2024-25.
The tax rate reduction in the simplified tax regime are made for income slabs up to ₹15 lakhs. If a taxpayer has total income beyond ₹15 lakhs, regardless of the regime applied, the applicable tax rate would be 30%. Thus, whether the taxpayer has a total income of ₹20 lakhs or ₹20 crore, he is taxed at the 30% slab. Obviously, this results in a huge disparity for taxpayers at the lower end of this income group, as they are left with a significantly lower spendable surplus. Out of the 8 income slabs in simplified tax regime, 7 slabs are applicable for income levels below ₹15 lakhs.
The much-needed tax relief
The government could explore by introducing a couple of income slabs between ₹15 lakhs and ₹50 lakhs, with tax rates lower than 30%. This will help leave some money in the hands of the taxpayers. In the last few years, the tax department has reported a significant increase in direct tax collection from ‘non-corporate’ taxpayers. Individuals contribute a significant part to this kitty. However, it is time the government took notice of the strain on the struggling middle-income group and introduced timely relief.
The author is Partner with Deloitte India
Disclaimer: The views expressed in this article are those of the author, and not of Mint
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