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The upcoming Union Budget 2025 in India is generating significant anticipation, particularly among individual taxpayers. Experts, such as Rama Karmakar, tax partner at EY India, express optimism for potential tax legislation reforms that would directly benefit taxpayers. A key area of focus is the Concessional Tax Regime (CTR), where there's a strong expectation that the basic exemption limit will be raised from the current Rs 3 lakh to Rs 5 lakh. This would significantly increase the disposable income of a large segment of the population. The potential impact on consumer spending and overall economic growth is considerable, as increased disposable income would fuel demand across various sectors. The proposed increase is seen as a substantial step towards providing relief to middle-class taxpayers and encouraging greater participation in the formal economy.
Beyond the CTR, taxpayers utilizing the old tax regime are equally hopeful for improvements. Rationalization of tax rates under this regime is widely anticipated. Furthermore, there’s a push for increased flexibility and benefits related to House Rent Allowance (HRA). Currently, the HRA exemption is capped at either 50% or 40% of the basic salary, depending on the location. Experts are advocating for the reclassification of rapidly expanding cities like Bengaluru, Hyderabad, Gurgaon, and Pune as metropolitan cities. This reclassification would allow taxpayers in these cities to qualify for the higher 50% HRA exemption, providing substantial financial relief. This is particularly relevant considering the rising cost of living in these urban centers, a factor that significantly impacts household budgets. The proposed changes would directly address this financial strain and could potentially stimulate property markets in these burgeoning cities.
Another significant area requiring attention is home loan interest deduction. Currently capped at Rs 2 lakh under the old tax regime, many believe this limit should be increased. Raising the cap would positively impact taxpayers, particularly those in the middle and upper-middle classes who are investing in homeownership. Increasing this limit would align it more closely with the rising property prices and overall inflation, making homeownership more financially attainable for a larger segment of the population. This measure would be a strong encouragement for homeownership, bolstering the real estate sector and potentially contributing to a more stable and equitable housing market. A major focus of attention centers around the lack of clarity surrounding taxation of electric vehicles (EVs) provided by employers to employees for both personal and official use. The absence of clear guidelines on perquisite valuation creates ambiguity and practical challenges for employers. The government providing clarity on this front would significantly reduce administrative burden and streamline processes.
Furthermore, deferring the taxability of interest earned on provident fund (PF) contributions is another area of considerable interest. This would offer significant long-term financial benefits to employees and encourage greater savings. Taxpayers are also keenly observing potential changes related to Employee Stock Option Plans (ESOPs). Currently, tax payment deferral on ESOPs until sale is only available to employees of specific eligible startups. Expanding this benefit to all companies would ensure uniform taxation for ESOPs, and create a more level playing field for all companies that use them as an employee incentive. This would encourage wider adoption of ESOPs as a tool for employee retention and attraction, benefiting both businesses and employees.
In conclusion, the upcoming Union Budget 2025 presents a significant opportunity for the Indian government to address various tax-related concerns and provide significant relief to individual taxpayers. The proposed changes, including raising the tax exemption limit, enhancing HRA and home loan interest deductions, and providing clarity on EV and ESOP taxation, would not only have a direct positive impact on individual finances, but also stimulate economic growth by increasing consumer spending. Streamlining processes and clarifying various aspects of tax legislation will create a more transparent and efficient tax system, boosting confidence in the government's fiscal policies and encouraging greater economic participation from all segments of the population. The overall objective is to create a more inclusive and equitable tax system while simultaneously stimulating economic growth.
Source: Union Budget 2025: What Budget May Bring For Individuals? An Expert View