As Budget 2025 approaches, taxpayers can look forward to some positive changes. Government sources suggest that Finance Minister Nirmala Sitharaman may unveil two major announcements aimed at enhancing the new income tax regime. The proposed changes could provide more exemptions, primarily benefiting those in the new tax system. These updates are part of a broader strategy to boost the economy by increasing people’s spending power and providing more disposable income.
1. Boost to Standard Deduction Limit
Currently, the standard deduction in the new tax regime stands at ₹75,000. However, sources indicate that the government could increase this limit to ₹1 lakh in the upcoming budget. If implemented, this change would allow taxpayers to reduce their taxable income by ₹1 lakh, resulting in significant savings. Both employees and pensioners would benefit from this boost, leading to more money in the hands of taxpayers.
2. Expanded 20% Tax Slab Range
Another anticipated update is the expansion of the 20% tax slab. Presently, this tax rate applies to those with an income between ₹12 lakh and ₹15 lakh. Under the proposed changes, the slab could extend up to ₹20 lakh, providing relief to individuals in the ₹15-20 lakh income bracket. This adjustment would primarily benefit middle- to high-income taxpayers, as they would pay less tax compared to the existing structure.
Final Decision to Be Made by the PMO
Though these proposed changes look promising, the final decisions rest with the Prime Minister’s Office (PMO). A report on the matter has been submitted by the Finance Ministry, which highlights the need to make the new tax system more appealing. To achieve this, the government must expand the scope of existing tax exemptions, as the current system offers limited deductions and exemptions, with tax-free income up to ₹7 lakh.
Fiscal Deficit Remains a Key Concern
As Finance Minister Nirmala Sitharaman prepares for her eighth consecutive budget presentation on February 1, managing the fiscal deficit will remain a top priority. The target for the current fiscal year is 4.9%, with a goal of reducing it to below 4.5% by 2026. Economists anticipate that the government will need to strike a balance between providing tax relief and keeping the country’s fiscal health in check.
