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The upcoming Budget 2025 in India is generating significant anticipation, particularly regarding personal income tax changes. The overarching goal, as articulated by various experts and hinted at in recent governmental actions, appears to be increasing taxpayers' disposable income and simplifying the tax system. This is reflected in several key expectations surrounding the budget. One of the most significant expectations revolves around the Concessional Tax Regime (CTR). Many are hoping for an increase in the basic exemption limit under the CTR, potentially raising it to INR 500,000 from the current INR 300,000. This would directly benefit a considerable segment of the taxpayer population, leading to substantial tax reductions for many. The potential tax savings, as estimated by some analysts, range from INR 10,400 to INR 11,440, depending on the individual's income bracket. This would align with the government's expressed intention to boost consumer spending and stimulate economic growth.
Beyond the basic exemption limit increase, there's considerable interest in seeing improvements to the CTR's overall attractiveness. This could involve reductions in the maximum marginal tax rate (currently 42.744%, with proposals suggesting a decrease to 39%), the introduction of a standard deduction, adjustments to existing tax slabs, and an increase in the NPS deduction limit for private sector employees from 12% to 14% of their basic salary. These measures are expected to provide further relief and incentives for taxpayers under the CTR, encouraging more widespread adoption. Another critical area needing attention is the taxation of capital gains. The current system is viewed as complex and fragmented, with calls for consolidation of asset classes, simplification of the surcharge for long-term capital gains, and clearer holding period definitions. This simplification would reduce ambiguity and administrative burden for taxpayers.
The government's continuous push towards digitalization in tax administration is expected to continue in Budget 2025. Recent advancements, such as the reduction in average income tax return processing time to just 10 days in FY 2023-24, demonstrate the government's commitment to efficiency and transparency. The availability of data through platforms like the Annual Information Statement (AIS) and Tax Information Summary (TIS) also reflects this commitment. However, expectations extend beyond simply speeding up processes. There's a desire for enhanced accountability in taxpayer interactions with the Centralised Processing Centre (CPC). Clearer channels for resolving taxpayer issues and grievances are highly sought after, ensuring a more positive and efficient taxpayer experience. Furthermore, allowing the offset of Tax Collected at Source (TCS) against tax deductible at source on salary income would further streamline the tax payment process, potentially easing the burden on taxpayers.
Several other specific tax-related issues are anticipated to be addressed in Budget 2025. The valuation of electric vehicle (EV) perks under the income tax law is currently ambiguous due to the absence of specific rules. With the growing popularity of EVs, the budget is expected to provide much-needed clarity on this matter. The taxation of Virtual Digital Assets (VDAs), including cryptocurrencies and NFTs, remains a gray area, requiring clear guidelines and a well-defined tax structure to regulate the burgeoning market and resolve uncertainty surrounding the treatment of losses from such transactions. The limitations on setting off losses from house property (currently capped at INR 200,000) are expected to be reviewed, with a potential increase in this cap to allow for larger offsets against other incomes. Expansion of the list of cities eligible for the 50% basic salary limit for House Rent Allowance (HRA) exemption is also anticipated, potentially including cities like Pune, Hyderabad, Bengaluru, Gurgaon, and Ahmedabad. Finally, the possibility of tax deferral on Employee Stock Ownership Plans (ESOPs) for all employees until the shares are sold, mirroring the current benefit enjoyed by eligible startups, is generating interest among the wider workforce.
The government's approach towards the old and new tax regimes remains a point of speculation. The intention behind introducing the new regime was to simplify tax calculations, yet it has not seen the level of adoption that the government initially hoped for. Experts are weighing in on whether the government might choose to phase out the old regime altogether or perhaps revise it to make it more competitive with the new regime. The final verdict on this and all the previously mentioned points is eagerly anticipated on February 1, 2025, when the Finance Minister unveils Budget 2025, marking a significant moment for taxpayers and businesses alike. The budget's success will be measured not only by the direct financial impact on taxpayers but also by its ability to streamline processes, enhance transparency, and promote fairer tax administration across the board. The outcome will significantly shape the economic landscape and investment climate in the year ahead.
Source: Budget 2025 income tax expectations: Top personal tax changes on the wishlist