Budget 2025 Income Tax Slab Change Expectation

Budget 2025 income tax slab change expectation: As the Union Budget 2025 approaches, many people, particularly those in the middle-income group and salaried employees, are anticipating tax cut announcements by Finance Minister Nirmala Sitharaman.

On Thursday (January 23, 2025), PTI reported Barclays as saying that the government should announce an “effective” personal income tax cut.

Currently, income above ₹15 lakh is taxed at the rate of 30% under the new tax regime. However, several media reports and tax experts suggest that the upcoming budget may propose one or both of the following changes in the new regime:

• First, the government may make income up to ₹10 lakh tax-free.
• Second, the budget may introduce a new 25% tax slab for incomes ranging from ₹15 lakh to ₹20 lakh, according to Business Standard.

What experts say

Experts believe that the expected changes, if approved, will significantly reduce the tax burden for middle-class and salaried employees.

“If the government approves the above-mentioned changes in the coming budget, it will reduce the tax burden, especially of the middle-income group and salaried employees, providing them with a greater amount of disposable income,” said CA Dr Suresh Surana.

“A new 25% tax slab for the ₹15 lakh to ₹20 lakh income range would reduce the marginal tax rate for individuals whose incomes fall in this bracket,” said Raheel Patel, partner at Gandhi Law Associates

However, according to Patel, the exact impact of the expected tax cuts will depend on additional factors such as the continuation of existing deductions, surcharges, and any other changes announced in the budget.

Will tax cuts help the economy?

Tax experts say that the expected tax changes will not only help individual taxpayers but also increase consumption activities, thus boosting the economy.

“It will be a trade-off for the government between a decrease in tax revenue and an increase in consumption activity of taxpayers,” said SR Patnaik, partner and head of taxation at Cyril Amarchand Mangaldas.

According to Patnaik, the government is anticipating that such tax relief will increase spending on consumer durables and stimulate GDP growth.

“It is also important to note that modifying the income tax slab rate is not the only means of providing relief to taxpayers or stimulating consumption activity,” he said.

Patel said, “This will lead to lower total taxes, increased disposable income, and a more gradual tax progression, all of which can be beneficial to both taxpayers and the economy at large.”

How much income is tax-free currently in the new regime?

Salaried individuals earning up to ₹7.75 lakh have to pay no tax due in the new tax regime to the availability of a standard deduction of ₹75,000 and the rebate available under section 87A of the Income-tax Act, 1961.

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