New Delhi, January 27: The upcoming Union Budget 2025-26, to be presented by Finance Minister Nirmala Sitharaman on February 1, is expected to bring much-needed relief to the salaried class. Sources suggest that the government is likely to revise income tax slabs and enhance the standard deduction to address the rising concerns of middle-class taxpayers amid inflationary pressures.
Currently, the basic exemption limit under the new tax regime stands at Rs 3,00,000, which has been criticized as outdated given the escalating cost of living. Experts anticipate an increase in this threshold, aiming to ease the financial burden on small taxpayers and reduce compliance costs.
Akhil Chandna, Partner at Grant Thornton Bharat, expressed optimism about these potential reforms. He stated, “Taxpayers are hopeful for measures addressing pressing financial concerns. Reducing personal income tax rates, especially for individuals earning up to Rs 15 lakh annually, is expected under both the old and new tax regimes. This will provide significant relief to middle-income earners.”
Chandna also highlighted the importance of introducing progressive standard deductions linked to a percentage of salary to ensure equitable benefits across income groups. Currently, the standard deduction under the new tax regime is fixed at Rs 75,000 for all income brackets.
Additional deductions for essential expenses, such as health insurance, life insurance premiums, and home loan interest payments, are also being considered. These changes aim to make the new tax regime more attractive and align with the expectations of 63% of taxpayers surveyed in Grant Thornton’s Union Budget 2025 Pre-Budget Expectations Survey, who called for increased deduction limits under the old tax regime.
The revised new tax regime, introduced in the 2024 Budget, offers tax-free income up to Rs 3 lakh, with progressive rates thereafter. For instance, income between Rs 3 lakh and Rs 7 lakh is taxed at 5%, while income above Rs 15 lakh attracts a 30% tax rate.
Comparatively, the old tax regime provides various deductions, including Rs 1,50,000 under Section 80C for investments, Rs 50,000 as a standard deduction, and up to Rs 2,00,000 for home loan interest under Section 24(b).
In the previous budget, Sitharaman increased the standard deduction for salaried individuals from Rs 50,000 to Rs 75,000, resulting in annual tax savings of up to Rs 17,500 for many taxpayers. The upcoming budget is expected to build upon these reforms, offering further financial relief to the salaried class.
With approximately 72% of taxpayers reportedly opting for the new tax regime, the proposed changes aim to simplify tax compliance while encouraging greater economic participation.
