Understanding the Tax Reforms in India Budget 2025

Posted on Friday, January 31st, 2025 | By IndusInd Bank

Each year, the government of India introduces its Union Budget that outlines the various economic policies it will make in the upcoming year. Amongst several things, the budget also lays down the taxation rules for individuals, corporations, and other entities.

With the Budget 2025 around the corner, people have high hopes that the government will introduce tax reforms such as tax rate cuts to boost household spending. Wondering what changes the Budget 2025 will bring for you as a taxpayer?

Read on to find what the experts are hoping.

Expected Tax Reforms in the Union Budget 2025

From reductions in the tax rates to an increase in deduction/exemption limits, here’s what the expected tax reforms for the Budget 2025 look like: 

1. Raising the Basic Exemption Limit

Experts are hoping the government will raise the basic exemption limit for individual taxpayers. Currently, the basic exemption limit stands at ₹3 lakhs. Raising this bar can reduce tax avoidance and help the salaried category reduce their tax outgo, which can help boost consumption.

India has been experiencing low levels of urban consumption, driven by various factors, of which a slowing household income is one. Positive tax reforms in the Budget 2025 may increase the disposable income of salaried individuals, which can increase the consumption levels.

Increasing the standard deduction limit (which currently stands at ₹50,000 under the old regime and ₹75,000 under the new regime) can also help increase the disposable income of the salaried class. 

2. Changes in Taxation for Higher Income Slabs

In Budget 2025, tax slab rates for higher incomes may see some changes. The ₹12-15 lakhs slab, which currently attracts a tax rate of 20% (in the new tax regime), may see a decrease in its rate. In addition, some experts are also suggesting that individuals in the ₹15-20 lakhs category might attract a new tax rate of 25%.

If put into practice, this could leave the earners in these slabs with a higher post-tax income, enabling them to spend more and boost the economy. 

3. Increase in Section 80C Deduction

Section 80C is one of the major sections of the Income Tax Act (ITA) to help citizens with their tax savings. Individuals can claim up to ₹1.5 lakhs against investments in Public Provident Fund (PPF), mutual fund such as equity linked saving schemes, fixed deposits, National Savings Certificate, and more. 

The Section 80C limit was last revised in 2014-15. As almost a decade has passed. Experts are hoping for a revised deduction limit in the upcoming budget to help taxpayers increase their savings. A revised limit may also lead to higher investments and more individuals opting for government schemes. 

4. Raise Deduction Limit Under Section 80D

For the uninitiated, Section 80D allows taxpayers to claim deductions up to ₹25,000 (for individuals under 60 years old) and ₹50,000 (for senior citizens) against their health insurance premiums. 

Experts propose the deduction limit for those under 60 years be increased to ₹50,000 and for those above 60 years to be increased to ₹1,00,000 in the Budget 2025. This can encourage more people to buy health insurance, which can help in scaling up the healthcare infrastructure of the nation in the long run. 

5. Increase Deduction Limit for Home Loan Interest Payments

With an aim to boost the real estate sector and bring in new homebuyers, experts are hoping that the Budget 2025 will introduce an increased deduction limit for home loan interest payments as well. Currently, individuals can claim up to ₹2 lakhs against the interest component of their home loan repayment. 

Along with tax savings, this move may also lead to better economic growth as more people invest in the real estate sector. 

6. Tax Breaks and Initiatives for Start-Ups

Besides the salaried individuals and the middle class, the startup sector is also expecting some helpful changes with the announcement of the Budget 2025. More importantly, a simplified tax framework may make it easier for start-ups to operate and promote innovation in the economy. In addition, increased tax breaks may also help more individuals start their own enterprises and allow existing startups to take bolder leaps. 

Experts are also proposing the new tax regime to have more exemptions and deductions. Currently, most of these can be only availed in the old tax regime. If implemented, this may lead to more individuals opting for the new tax regime. 

Also Read: Best Current Account Guide for Start-Ups in India

Conclusion

The expectations from Union Budget 2025 are high, especially keeping in mind the preceding economic slowdown. Experts hope that the Government of India will try its best to introduce positive tax reforms which can encourage financial discipline as well as boost spending, eventually leading the economy to greater heights. 

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.