What taxpayers can expect in Budget 2025

Govt may increase exemption limit to Rs 5L from the present Rs 3L; standard deduction may be raised to Rs 1 lakh.
What taxpayers can expect in Budget 2025
Updated on
3 min read

NEW DELHI: The run-up to Budget 2025 has raised expectations of the middle class that the government is likely to give some relief on the personal taxation space. The aim would be to give a boost to private consumption, which has been lagging for quite some time.

The tax sops in the personal income tax space can be in the form of change in basic exemption limit, tweaks in the tax slab rates as well as an increase in the standard deductions. Apart from that a few other changes are also likely in respect of certain compliances to make the life of individual taxpayers easier. We list out some of the likely changes in the budget:

Higher exemption limit: Currently, income up to R3 lakh is not taxed if the total income is R7 lakh or more under the new tax regime. The government might increase the exemption limit to R5 lakh, which means any income between R 5 lakh and R7 lakh would be taxed at 5%. Currently, income between R3 and R7 lakh is taxed at 5%.

Higher standard deduction: At present, the standard deduction is R75,000 under the new tax regime. This could be increased to R1 lakh, if the government is not considering raising the exemption limit. Standard deduction is the amount that is deducted directly from the income of an individual to arrive at the taxable income. It must be noted that taxpayers opting for the old tax regime can avail standard deduction of only R50,000.

Changes in tax slab: Last year, the finance minister had increased the 5% tax slab from R3-6 lakh to R3-7 lakh, and the 10% tax bracket from R6-9 lakh to R7-10 lakh. This year, the finance minister may change the 20% tax bracket from R12-15 lakh to R12-18 lakh. Accordingly, the highest tax rate of 30% could be applicable for income over R18 lakh. Most of these changes are likely in the new tax regime as 72% of the taxpayers have moved to the new tax regime. The government would continue to make the new tax regime more appealing for taxpayers, and therefore, may not offer much relief to those opting for the old tax regime.

Other likely changes

In cases where the employer reimburses running and maintenance expenses of motor cars, the valuation of the motor car benefit is based on the cubic capacity of the engine to determine the perquisite value. No separate criteria have been laid out with respect to electric cars. The Budget may come out with specific rules on use of EVs.

Tax experts also hope that the government may defer TDS on PF interest (above R2.5 lakh) until the withdrawal stage. They also demand that the ESOP tax deferment benefit should be extended to all employers, allowing tax payment at the sale stage. Another relief sought is on TDS deducted on sale of house property by NRIs.

If the seller is an NRI, tax is withheld at a higher rate of 20% (against 1% in case of resident), and the buyer is also required to obtain a TAN, deposit the tax deducted and file e-TDS returns. “While the purchase and sale of the property is not a recurring transaction, obtaining TAN solely for the mentioned purpose may result in more inactive TANs,” says Divya Baweja, partner, Deloitte India. To address this issue, the TDS process applicable for cases where the seller is an NRI may be eased by introducing challan-cum-statements similar to those applicable for a resident seller.

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