As the Union Budget approaches, different groups, including taxpayers, come up with high expectations every year. While some of their demands are addressed by the government, many remain unattended. More often than not, there’s a big gap between what the government delivers and what the people anticipate. In this context, we present our predictions for Budget 2025 — offering practical insights into what taxpayers can truly expect from Finance Minister Nirmala Sitharaman’s second full-fledged Budget in the Modi 3.0 regime.
Expectations are high among taxpayers that Budget 2025-26 may introduce some big-bang reforms on the personal taxation front. Key factors fueling these expectations include declining returns on small savings, high inflation eating into earnings and reducing disposable income, complexities due to the dual tax regime, and the absence of substantial tax relief for the middle class in the post-pandemic period.
However, our predictions for the Budget are carefully crafted without being swayed by the overhyped and often exaggerated wishlists circulating through various reports. Instead, the below predictions and expectations are based on real challenges and the current economic landscape. Take a look at key predictions for what Budget 2025 might bring in terms of personal taxation.
1. No changes again in Old Tax Regime tax structure and slabs
It is highly unlikely that the FM will make any significant changes to the Old Tax Regime, including the tax structures and slabs. The obvious reason behind this is that the tax department wants to further push the New Tax Regime. Data suggests that over 72% of taxpayers have already switched to the New Tax Regime, signaling a clear shift in preference. With this encouraging trend, the government is expected to focus on fine-tuning the new regime further to make it more attractive rather than making changes to the older structure, which it aims to phase out ultimately.
Having said that, though there might not be any announcements for taxpayers under the Old Tax Regime, it is not going away anytime soon. A complete phase-out is unlikely at least in this budget, as not all taxpayers are expected to transition to the new regime immediately. The government will probably take a call on doing away with the Old Tax Regime once at least 90% of taxpayers shift to the new regime.
This is crucial because about 44% of total tax collections come from individuals (11% of total actual taxpayers) earning between Rs 15 lakh and Rs 50 lakh. This group comprises just 50 lakh taxpayers out of the 3.8 crore individuals who paid taxes. Of these 3.8 crore taxpayers, 3.34 crore, or 88%, have reported an annual income of less than Rs 15 lakh, contributing 20% to total tax collections.
To clarify, it is important to differentiate between total number of income tax return filers and actual taxpayers. While about 8.8 crore individuals filed returns in the latest assessment year (2024-25), nearly 5 crore filed ‘nil’ returns, meaning only 3.8 crore taxpayers contributed to tax collections, data suggests.
Also read: Budget 2025: Higher exemptions to revamped 80C, here’s what taxpayers expect from FM
2. Some restrained announcements regarding Direct Tax Code possible
In the last budget, Sitharaman announced a six-month review of the Income Tax Act, 1961, which is expected to be replaced with the Direct Tax Code 2025. The DTC aims to simplify the tax structure by streamlining various provisions. As the six-month timeline comes to an end, a new Income Tax Bill is expected to be introduced in the upcoming Budget session, though its actual implementation in its entirety might take longer.
Crafting a new tax framework is a complex task and will require wider consultations with various stakeholders on matters such as drafting new rules and updating the e-filing portal, among other important issues. These processes will take time, so a more realistic expectation is that the DTC may be introduced in the 2025 Budget Session, but its various provisions will be rolled out in phases.
3. Basic tax exemption limit may be hiked to Rs 5 lakh under the New Tax Regime
In a major overhaul of the tax slab, the FM may announce a tax exemption on annual income up to Rs 5 lakh. At present, those earning Rs 3 lakh or less under the new regime enjoy basic tax exemption. This change may apply exclusively to taxpayers opting for the new tax regime, as the government wants to ensure that people in low-income brackets have more disposable income.
It must be noted that under the new regime, those earning up to Rs 7.5 lakh per annum pay no tax, thanks to the Rs 75,000 Standard Deduction and the tax rebate of up to Rs 25,000 under Section 87A.
So, if this basic tax exemption up to Rs 5 lakh is implemented, we will likely see changes in other slabs as well. This will significantly reduce the tax liability for individuals in higher tax brackets. This move will align with the government’s ongoing efforts to simplify the tax system and encourage more taxpayers to switch to the new tax regime, which has already been adopted by over 72% of taxpayers.
4. Individuals earning up to Rs 10 lakh annual income may not pay any tax under New Tax Regime
Currently, individuals earning up to Rs 7.5 lakh are not required to pay any tax under the New Tax Regime due to the basic exemption limit and the rebate available under Section 87A. Now, as we discussed above, if the basic exemption limit is hiked to Rs 5 lakh and a new slab rate of 5% is introduced for those with an annual income in the range of Rs 5 lakh to Rs 10 lakh, there will be no tax applicability on individuals falling in this income bracket. Let’s take a look at how we imagine the slab structure to look after the changes we predict.
Here’s the table for the expected new tax slabs under the New Tax Regime:
| Annual Income | Tax Rate (%) |
| Rs 0 to Rs 5 lakh | NIL |
| Rs 5 lakh to Rs 10 lakh | 5% |
| Rs 10 lakh to Rs 12 lakh | 10% |
| Rs 12 lakh to Rs 15 lakh | 20% |
| Rs 15 lakh to Rs 20 lakh | 25% |
| Above Rs 20 lakh | 30% |
Existing new tax slab rates after the Budget 2024-25:
| Annual Income | Tax Rate (%) |
| Up to Rs 3 lakh | NIL |
| Rs 3 lakh to Rs 7 lakh | 5% |
| Rs 7 lakh to Rs 10 lakh | 10% |
| Rs 10 lakh to Rs 12 lakh | 15% |
| Rs 12 lakh to Rs 15 lakh | 20% |
| Above Rs 15 lakh | 30% |
As data suggests, only around 6% of India’s population files income tax returns, and less than 3% pays taxes. This 3% consists mostly of salaried individuals who bear the majority of the tax burden.
Reducing the tax burden on salaried employees, especially those with incomes under Rs 10 lakh, could have a positive impact on the economy. With more disposable income, salaried individuals are likely to increase their consumption and investment.
5. Home loan benefits may come under New Tax Regime
During the Modi 1.0 regime, one of the key initiatives undertaken was the PMAY subsidy scheme, which benefited the Economically Weaker Section (EWS), Lower Income Group (LIG), and Middle-Income Group (MIG) with subsidies of up to Rs 2.67 lakh, depending on the loan amount and tenure. This limited-period scheme was discontinued for the MIG category on March 31, 2021, and later for the EWS and LIG categories in March 2022. However, it was later restarted for EWS and LIG due to their smaller loan amounts.
Under the scheme, MIG eligibility was tied to home prices up to Rs 45 lakh, which was considered affordable housing at the time. The MIG category included families with annual incomes between Rs 6 lakh and Rs 18 lakh, further divided into two groups:
MIG-I: Annual household income of Rs 6,00,001–12,00,000.
MIG-II: Annual household income of Rs 12,00,001–18,00,000.Given the skyrocketing housing prices, the government might consider reintroducing the PMAY subsidy scheme for the MIG category. This move would not only provide financial relief to homebuyers but also increase disposable income in the hands of the salaried and middle class.
There is a strong possibility of the government bringing home loan deduction benefits under the new tax regime, similar to those available in the old tax regime. One of the key reasons a large number of middle-class taxpayers continue to be under the old regime is the home loan interest deduction. Currently, they can claim deductions of up to Rs 2 lakh on interest repayment under Section 24B and on principal repayment under Section 80C.
If the government reinstates these benefits, either partially or fully, under the new tax regime, it would incentivise more taxpayers to transition away from the old regime.
6. NPS benefits under the New Tax Regime
In the last Budget, FM Sitharaman attempted to offer additional benefits to National Pension System (NPS) subscribers under the New Tax Regime, but the move had little impact. Under Section 80CCD(2), employer contributions of up to 10% of an employee’s basic salary towards NPS are tax-free. This limit was increased to 14% under the New Tax Regime, but the issue remains that most private-sector employers do not contribute to NPS for their employees. As a result, the benefit has had limited reach among salaried taxpayers.
Given the government’s clear intent to promote NPS as a retirement savings tool and encourage a shift to the New Tax Regime, there is a strong possibility that the NPS deduction benefit of up to Rs 2 lakh on an employee’s contribution under the Old Tax Regime could be extended to the new regime as well. This would make NPS more attractive and help drive more taxpayers away from the old regime.
7. EPFO 3.0: Potential tax breaks under the New Tax Regime
EPFO 3.0 is an upcoming initiative aimed at transforming Employees’ Provident Fund (EPF) services with key changes, including the removal of the 12% cap on employee contributions. This means employees can contribute more than the existing limit, leading to a larger retirement corpus over time.
Given the government’s push towards the New Tax Regime, we predict that the government may introduce deduction benefits on employee contributions under this regime. This could encourage more employees to increase their EPF contributions, as they would not only secure their retirement but also save on taxes.
Currently, under the Old Tax Regime, employees can claim a deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961. On the employer’s side, contributions up to 12% of the employee’s salary remain tax-exempt.
8. Capital gains tax changes unlikely
The government made significant changes to capital gains tax in the last budget, so it is highly unlikely that there will be any immediate changes in this area. Some of the adjustments made will start taking effect in the upcoming fiscal year, so in this regard, we don’t anticipate any further changes.
The changes introduced in Budget 2024, which apply to transactions after July 23, 2024, included modifications to tax rates and holding periods for various asset classes.
Long-term gains from equity shares, equity-oriented mutual funds, and business trust units held for over 12 months are taxed at 12.5% on gains exceeding Rs 1.25 lakh annually. The exemption limit was raised from Rs 1 lakh to Rs 1.25 lakh in the 2024 budget. Additionally, the taxation of short-term capital gains (STCG) for listed equity shares, units of equity-oriented funds, and business trust units has increased from 15% to 20%.
9. Standard Deduction to be raised to Rs 1 lakh under New Tax Regime
This is a component that benefits taxpayers under the New Tax Regime compared to those under the Old Tax Regime. In the last budget, Sitharaman increased the Standard Deduction limit under the New Tax Regime from Rs 50,000 to Rs 75,000. However, the Standard Deduction under the Old Tax Regime remained unchanged.
As we anticipate that the government will exempt basic annual income up to Rs 5 lakh from tax and aims to ensure individuals earning up to Rs 10 lakh annually do not pay any tax, it will be essential to raise the Standard Deduction to Rs 1 lakh and retain the 87A rebate.
For example, if an individual’s income of Rs 5 lakh is tax-exempt, and income between Rs 5 lakh and Rs 10 lakh is taxed at 5%, the total tax liability would be Rs 20,000 after applying the Standard Deduction (expected at Rs 1 lakh). In this scenario, the final tax liability would be reduced to Rs 0, as the tax rebate of Rs 25,000 would offset it completely.
10. New tax slab of 25% under the New Tax Regime
The FM may introduce an additional tax slab of 25% for income levels between Rs 15 lakh and Rs 20 lakh. This would provide significant tax relief and increase disposable income. Higher liquidity in the hands of individuals could spur consumption. In such a scenario, the threshold for the 30% tax slab, currently set at Rs 15 lakh, could be raised to over Rs 20 lakh.
Conclusion:
As we look forward to Budget 2025, the government is expected to simplify the tax structure, encourage savings and boost consumption. The shift towards the New Tax Regime will continue, with expected tweaks in the Standard Deduction, NPS benefits, and home loan benefits. While capital gains tax changes seem unlikely in the immediate future, the government’s focus on increasing disposable income, especially for the middle class, could pave the way for broader fiscal reforms that provide more support to taxpayers and the economy as a whole.