In the Union Budget for 2024–25, Finance Minister Nirmala Sitharaman introduced several changes to relieve taxpayers who opted for the New Tax Regime. As a result of the government introducing some new and exclusive benefits over the past few union budgets for the new regime takers, government data suggests that over 72% of income tax filers have already moved out of the Old Tax Regime. Around 8.76 crore income tax returns (ITRs) have been filed for the Assessment Year 2024-25.

This data can sometimes be misleading. While it suggests that only 28% of taxpayers remain under the Old Tax Regime, a closer look at the breakdown of overall tax filers reveals that around 5 crore individuals paid zero tax, accounting for approximately 60% of the total returns filed.

Among these zero-tax return filers, a majority may have switched to the New Tax Regime. This indicates that the majority of taxpayers who significantly contribute to government tax collections are likely still under the Old Tax Regime.

In this context, many taxpayers who continue to follow the Old Tax Regime are hopeful that the government will announce much-needed relief measures. This is particularly relevant as Finance Minister Sitharaman has refrained from introducing such relief in the budgets she has presented in recent years.

Also read: Budget 2025: Home loan tax benefits to be included in New Tax Regime? Here’s what tax experts say

The possibility of the Finance minister (FM) offering major relief to taxpayers under the Old Tax Regime in the upcoming Union Budget 2025 remains a matter of great interest, says CA (Dr.) Suresh Surana.

While there have been no official announcements, most of the taxpayers including the middle-class income group, is expecting some relief from the upcoming budget. Some of the potential income tax reliefs that may be expected in the upcoming budget under the Old Tax Regime are:

Key expectations Old Tax Regime taxpayers have from the Budget 2025-26:

Potential relief in tax rates

A common expectation of the taxpayers is a reduction of tax rates under the Old Regime, especially from the taxpayers in the middle-income brackets. The government may adjust tax slabs or increase the exemption limit under the Old Regime to make it more competitive with the new regime.

For instance, an annual income of Rs 5-10 lakh is attracting 20% tax, which taxpayers want to be brought down to 15%. Similarly, those earning Rs 10-15 lakh per annum are supposed to pay 30% tax currently but this again is demanded to bring down to 25%.

This reduction in tax slabs would directly benefit middle and upper-middle-class taxpayers, particularly those with annual incomes above Rs 5 lakh, says Surana.

There have been several media reports suggesting that the government may consider a reduction in income tax for individuals earning up to Rs 15 lakh annually. This move would provide relief to the middle class and stimulate economic consumption.

Siddharth Maurya, Founder & Managing Director, Vibhavangal Anukulakara, believes that in light of the sound indicators regarding GST collections and the economy, there might be sweeping strides in personal income tax changes in the tax budget of 2025.

Also read: Joint Taxation: Can a husband and wife club income tax liability, file a single ITR in India?

Increase in threshold limit for Standard Deduction

The threshold limit for standard deduction of the IT Act was raised from Rs 50,000 to Rs 75,000 under the New Tax Regime. However, no corresponding revision was made in the Old Tax Regime and as such the limit for claiming Standard Deduction of Rs 50,000 u/s 16(ia) in the Old Tax Regime has remained unchanged for several years.

Given the rising inflation and increasing cost of living, there is a pressing need to revise this limit. An increase to Rs 75,000 (in the Old Tax Regime) and Rs 1 lakh (in the new tax regime) would provide significant relief to salaried individuals, allowing them to retain a higher portion of their income.

Increase in threshold limit for claiming other deductions

Section 80C of the Income Tax Act offers a cumulative deduction limit for various investment-linked tax-saving options, such as life insurance premiums, ELSS, PPF contributions, senior citizen saving schemes, principal repayment on housing loans, five-year fixed deposits, Sukanya Samriddhi Yojana, among others. It also covers essential expenditures like children’s tuition fees and home loan principal repayments.

However, the existing limit of Rs 1.5 lakh, set vide Finance Act 2014, has remained unchanged for nearly a decade and is insufficient considering the wide array of eligible investments and inflationary pressures. Taxpayers have been consistently advocating for an increase in this limit over the past 5-7 years.

“To align the deduction with inflation and the growing financial responsibilities of taxpayers, it is recommended to raise the limit under Section 80C to Rs 2 lakh. This long-overdue revision would provide significant relief to a broad segment of taxpayers and encourage greater participation in tax-saving investments,” suggests Surana.

Maurya added that there further seems to be optimism towards optimisation of slabs especially in the regimes above between 15-30% so as to effectively improve disposable income and spending. “For urban lower middle-class taxpayers, the financial recommendation of enhancing Section 80C limit repayment from its existing Rs 1.5 lakh to Rs 2.5 lakh seems inevitable.”

Increasing basic exemption limit

The current basic exemption limit of Rs 2.5 lakh under the Old Tax Regime and Rs 3 lakh under the New Tax Regime is widely regarded as insufficient, given the consistent rise in inflation and the increasing cost of living. Notably, the exemption limit for the Old Tax Regime was last revised to Rs 2.5 lakh in 2014, underscoring the need for an update.

“Raising the basic exemption limit to Rs 3.5 lakh for both tax regimes would offer much-needed relief to taxpayers, align the tax structure with prevailing economic conditions, and promote a fairer and more equitable taxation system,” suggests Surana.

Echoing similar sentiments, Maurya said, “The authorities may shift the benchmark exemption limit for the old regime from Rs 3 lakh to Rs 5 lakh in a bid to make it more compatible with the new.”

Concession to senior citizens with regard to capital gains

Maurya believes that “efforts in this direction are also being made for providing concession to senior citizens as there is an attempt to reform the tax structure on capital gains. Such revised limits would not only ease the burden on taxpayers but also trigger economic development through acquisition.”