Budget 2025 may bring income tax relief for the middle class. Here are three expected tax changes by FM Nirmala Sitharaman that could boost disposable income
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Budget 2025: Potential Tax Reforms for the Middle Class
The Union Budget 2025 is set to be presented on February 1, and middle-class taxpayers are eagerly awaiting Finance Minister Nirmala Sitharaman’s announcements. With rising costs and economic uncertainties, potential tax reforms could provide much-needed relief by increasing disposable income and fostering financial stability.
1) Standard Deduction Increase
One of the most anticipated changes in Budget 2025 is an increase in the standard deduction. Currently, salaried employees and pensioners can claim a standard deduction of ₹75,000. However, experts believe that this could be raised to ₹1,00,000, which would effectively reduce taxable income and lower the tax burden.
How Does This Impact You?
For instance, if you earn ₹10,00,000 annually, your taxable income after the current ₹75,000 deduction would be ₹9,25,000. However, if the standard deduction is increased to ₹1,00,000, your taxable income would reduce further to ₹9,00,000, leading to potential tax savings.
Expert View: “The government may consider enhancing the standard deduction to ₹1,00,000 under the new tax regime,” says Pankaj Mathpal, MD & CEO at Optima Money Managers.
2) Higher Income Tax Rebate
Under Section 87A of the Income Tax Act, individuals earning up to ₹7 lakh annually currently pay zero tax. There is speculation that this threshold could be increased to ₹8 lakh, effectively making income up to this level tax-free.
Expected Benefits
An increase in the rebate threshold means more taxpayers will fall into the zero-tax bracket, ensuring better savings and increased financial security for middle-class earners.
Expert Prediction: “If the tax-free income threshold is raised from ₹7 lakh to ₹8 lakh, it will offer significant relief to the middle class,” Mathpal added.
3) New Tax Slabs for Greater Relief
The government may revise the tax slabs under the new tax regime to make it more attractive. Here’s a possible new structure:
- Income up to ₹4 lakh – Nil
- ₹4 lakh to ₹8 lakh – 5%
- ₹8 lakh to ₹10 lakh – 10%
- ₹10 lakh to ₹12 lakh – 15%
- ₹12 lakh to ₹15 lakh – 20%
- Above ₹15 lakh – 30%
Why This Matters
If implemented, these revised slabs will reduce tax liabilities for middle-income earners, ensuring they have more disposable income for savings and investments.
Will the Old Tax Regime See Changes?
The government has been encouraging the adoption of the new tax regime. As a result, revisions in deductions under Sections 80C, 80U, and 24(b) (home loan interest deductions) seem unlikely.
Market Perspective: Former Infosys CFO TV Mohandas Pai highlighted the challenges faced by the middle class, stating that rising inflation, high EMIs, and soaring education costs have made tax relief a crucial expectation from the upcoming Budget.
Final Thoughts: What to Expect in Budget 2025?
As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2025, middle-class taxpayers hope for meaningful tax reforms that provide financial relief and promote economic growth. If these proposed changes are implemented, they could significantly enhance disposable incomes and improve financial security for millions of individuals.
Disclaimer: The views expressed in this article are those of individual experts and do not necessarily reflect the official stance of any financial institution. Please consult a certified financial advisor before making investment decisions.
