Budget 2025: A Game-Changer for individual taxpayers, strengthening the middle class and driving economic growth | Mint

The Budget 2025 has become a beacon of hope for individual taxpayers amidst a global landscape marred by the threat of “retreating globalization,” and a domestic economy grappling with inflation and subdued growth. The Finance Minister (FM) has risen to the occasion, presenting a budget that not only addresses the pressing concerns of the nation but also puts a spotlight on the middle class—the backbone of India’s growth and development.

In a strategic move to energize the economy, the FM has proposed a series of tax reforms aimed at increasing personal disposable income and stimulating consumption. The revised personal income-tax slabs are a testament to the government’s commitment to empowering citizens and fostering economic revival. The key personal income-tax proposals that are set to redefine personal finance are as follows:

Increased tax threshold for tax rebate

The new tax regime introduces a significant hike in the tax rebate threshold for salaried individuals, raising it from INR 7,75,000 to INR 12,75,000 (considering standard deduction of INR 75,000). This move is expected to leave more money in the hands of low income earners, potentially driving up consumption and savings. The highest tax rate of 30% will now be applicable on incomes exceeding INR 24,00,000, providing substantial tax savings and encouraging investment.

This will also encourage the minority individual taxpayers who still opt for the old tax regime to move towards the new tax regime as the threshold for break-even between old tax regime and new tax regime is now much wider.

An important point to note here is that the tax rebate is not applicable for income taxable at special rates such as capital gains. Under the old tax regime, the tax rebate is applicable on income up to INR 550,000 (considering standard deduction of INR 50,000) but it captures all types of incomes including income taxable at special rates.

Rationalized tax rates

The tax rates under the new regime have been meticulously recalibrated to offer benefits across the board. This means that the tax incidence will be on income over ₹4 Lakh from existing INR 3 Lakhs and the maximum rate of 30% will be applicable at income above INR 24 Lakhs instead of INR 15 Lakhs under the new tax regime.

Rationalization of TDS provisions

To ease the tax compliance burden, the FM has proposed higher thresholds for TDS and TCS, with notable exceptions such as the removal of TCS on educational remittances under the Liberalised Remittance Scheme when funded

by loans from financial institutions. For senior citizens, the TDS threshold on deposit interest has been generously doubled from INR 50,000 to INR 100,000. Due to lower TDS thresholds, senior citizens were filing tax returns to claim Income-tax refund even if there was no tax payable due to tax rebate. The increased TDS threshold will help senior citizens to manage their finances much better.

Extension of Updated tax return filing window

In a move to encourage accurate income reporting, the time limit to file updated tax returns has been extended from 24 months to 48 months from the end of the assessment year, with additional penalty ranging from 25% to 70% based on the delay in filing. The FM in her speech mentioned that 90 Lakh taxpayers voluntary filed updated tax return. The increased tax return filing window seems to be a measure to garner more tax revenue and give an opportunity for voluntary compliance.

Relief for house owners

Under the existing provisions, upto 2 self-occupied house properties are non taxable but with conditions such as that property is occupied by the taxpayer or has not been occupied due to taxpayer’s employment, business or profession carried on at any other place. These conditions have been done away with. So, any 2 house properties may be considered as self-occupied with no conditions. This change broadens the scope of tax relief for homeowners.

NPS Contributions for Minors

Parents or guardians can now claim tax deductions on contributions to the National Pension System (NPS) for minors, with tax-free withdrawals under specified conditions. This deduction is included within the existing INR 50,000 limit for their own NPS contributions.

New direct tax bill

The FM has also promised introduction (next week) of a new direct tax bill, which will be clear and direct, in text which is 50% of the present law, in terms of both chapters and words. The new direct tax code will be easier and simpler to understand for both taxpayers and tax administration with the objective of bringing tax certainty and reduced litigation.

As we navigate through the complexities of the global economic landscape, the FM’s budget stands as a pillar of hope, guiding India towards the vision of a ‘Viksit Bharat.’

Sonu Iyer, Partner and National Leader, People Advisory Services, EY India