Budget 2025 Income Tax: Suggestions for Increasing the 30% Income Tax Slab and Introducing Flat 30% Deductions
With Union Budget 2025 on the horizon, Finance Minister Nirmala Sitharaman should consider raising the threshold for the 30% income tax bracket, as suggested by Adhil Shetty, CEO of BankBazaar.
BankBazaar highlights three essential modifications to income tax that ought to be made in Budget 2025: increasing the threshold for the 30% tax bracket to ₹18 lakh, restructuring tax brackets, and implementing a standardized 30% deduction on gross income.
Propose Raising the 30% Income Tax Limit to ₹18 Lakh
Shetty points out that the 30% tax threshold has remained stagnant at ₹15 lakh since 2020, despite a significant rise of 21% in the Cost Inflation Index. We advocate for increasing this limit to ₹18 lakh to better reflect inflationary pressures and to alleviate financial strain on urban salaried individuals facing escalating costs.
This adjustment would help to distribute the tax burden more equitably among higher-income earners.
Revise Income Tax Brackets Beyond Basic Exemption Limits
Shetty raises concerns about merely increasing the tax-free income limit. While there are valid calls to elevate the tax-free income to ₹10 lakh, this approach ultimately shifts the tax burden toward higher-income individuals. The enhancement of tax brackets should promote fairness for all income ranges,” he states. According to AY2023-24 data, only 2% of taxpayers were responsible for 77% of the total income tax collected. A more balanced framework is needed.”
Introduce 30% Flat Deductions to Promote Savings
On the topic of declining long-term savings and insurance uptake, Shetty notes that “the lack of deductions within the new tax regime has resulted in diminishing interest in crucial financial protections. The penetration of life insurance is declining, while equity-linked savings scheme (ELSS) inflows are tapering off despite strong market performance.
He continues, “Fewer salaried professionals are participating in small savings schemes, and there is a notable lack of engagement with the National Pension System (NPS). These trends raise concern, especially given the current economic slowdown, dwindling household savings, and stagnant incomes. Tax deductions that incentivize saving and insurance are essential.
To counter these issues, Shetty proposes a flat 30% deduction on gross income, capped at ₹15 lakh. A streamlined deduction structure would encourage savings, insurance investments, and long-term financial planning, which are crucial for maintaining household stability.