Union Budget 2025: Significantly affected by rising inflation, decreasing real wages, and the increasing cost of living, individual taxpayers are turning their attention to Finance Minister Nirmala Sitharaman as the Budget 2025 is set to be presented on February 1.
Among the primary expectations of taxpayers are the rationalization of income tax slab rates, an increase in the Section 80C deduction limit, an enhancement of the standard deduction limit, additional tax incentives for homebuyers and investors, and modifications to the New Tax Regime to improve its attractiveness.
Outlined below are 5 key anticipations that taxpayers hold for Budget 2025.
1. Increase in Exemption Limit
Taxpayers want the government to increase the maximum exemption limit and reduce the overall tax rate to provide immediate relief to taxpayers and stimulate broader economic growth. Allowing individuals and businesses to retain a higher portion of their income would raise disposable earnings, fueling consumer spending and demand for goods and services.
“A higher exemption limit and reduced tax rates would make the taxation system more progressive by effectively supporting low- and middle-income groups, who often experience the greatest financial strain. It is recommended that the maximum exemption limit be increased to Rs 5,00,000 for all taxpayers, with a maximum tax rate of 30% applied after Rs 20 lakh,” says CA Naveen Wadhwa, Vice-President, Taxmann.
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2. Streamlining Section 80C
Since its last review in 2014, Section 80C of the Income Tax Act requires necessary modifications to enhance its effectiveness in tax savings. This section encompasses a range of financial commitments, including principal repayments on housing loans, tax-saving fixed deposits, contributions to the employees’ provident fund, tuition fees for children, and premiums for life insurance. To optimize the advantages for taxpayers, a strategic reorganization of Section 80C is essential. By distinguishing between loan repayments and insurance premiums, the government can provide more targeted and effective tax incentives for investments.
3. Enhancement of the 80C Deduction Limit
The adjustment of the Section 80C deduction limit has been a persistent request from individual taxpayers, alongside the need to streamline Section 80C of the Income Tax Act. The last adjustment occurred in 2014, which raised the limit to Rs 1.5 lakh. As reported by Bankbazaar, the existing limit of Rs 1.5 lakh, unchanged since 2014, should be elevated to a minimum of Rs 2 lakh to reflect inflation and increasing living costs. This increase would motivate taxpayers to save more and invest in various financial instruments.
4. Tax Benefits for Homebuyers
Individuals acquiring homes through housing loans are eligible for certain tax advantages. According to Section 24 of the Income Tax Act, borrowers can claim a deduction of up to Rs 2 lakh on the annual interest paid on their home loan EMIs. Furthermore, Section 80C of the Income Tax Act allows for a deduction of up to Rs 1.5 lakh on the principal repayment.
Tax professionals advocate for an increase in the deduction limit under Section 24 to a minimum of Rs 5 lakh, in light of the substantial increase in home loan interest rates and property prices. They also recommend raising the deduction cap for principal repayments under Section 80C or establishing a distinct deduction specifically for home loans.
5. Enhanced Benefits for Taxpayers Choosing the New Tax Regime
At present, the new tax regime provides a uniform standard deduction of Rs 75,000 applicable to all income brackets. To achieve equity between salaried and non-salaried individuals, it is recommended that the government implement progressive standard deductions based on a percentage of salary. Additionally, the government should consider permitting sensible deductions, such as those for health insurance, home loan interest, and life insurance, to enhance the attractiveness of the new tax regime.