The upcoming Budget 2025-26 is likely to introduce significant tax benefits aimed at individuals earning up to Rs 15 lakh annually. These measures are expected to increase disposable incomes, spurring consumption in urban areas where most taxpayers reside.
Sources indicate that the government is eyeing tweaks to the new income tax regime, introduced in FY 2020-21, which has attracted over 70% of taxpayers due to its simplified structure and regular enhancements.
PROPOSED CHANGES IN TAX STRUCTURE
Currently, under the new regime, income up to Rs 3 lakh is tax-free, while earnings between Rs 3 lakh and Rs 6 lakh are taxed at 5%, Rs 6-9 lakh at 10%, Rs 9–12 lakh at 15%, Rs 12–15 lakh at 20%, and above Rs 15 lakh at 30%. A standard deduction of Rs 75,000 ensures that incomes up to Rs 7.75 lakh are tax-free.
Reports suggest that the basic exemption limit might increase from Rs 3 lakh to Rs 4 lakh, with corresponding adjustments to other slabs. For example, the 5% slab may cover incomes from Rs 4 lakh to Rs 7 lakh, making the tax regime more beneficial for earners up to Rs 14 lakh.
BOOSTING SPENDING POWER AMID INFLATION
The government’s focus appears to be on easing the burden on individuals earning Rs 13–14 lakh annually, especially in urban areas, where inflation has eroded purchasing power, according to sources.
The changes aim to provide relief to urban taxpayers, who face rising inflation and form the bulk of the consumption-driven economy. Experts believe that revising tax slabs by raising thresholds by Rs 1 lakh each could significantly lower tax burdens, encouraging higher spending.
Sudhir Kapadia, EY India Tax & Regulatory Services partner, while speaking to Financial Express, stated, “Majority of income taxpayers live in urban areas where most of the consumption also takes place. Given that inflation is hurting people in the lower income strata, each IT slabs can be raised by 1 lakh each.”
He added, “To boost consumption, especially in urban areas (where the majority of income taxpayers reside), expanding slabs at lower and middle-income levels, that is, up to 20% tax bracket should be considered.”
RISING TAX REVENUES SUPPORT REFORMS
With personal income tax collections rising 25% to Rs 7.41 lakh crore during April-November FY25, the government is in a strong position to implement these reforms. Unlike corporate taxes, personal tax receipts have consistently surpassed targets, providing fiscal space for relief measures.
The anticipated changes could be a game-changer, delivering much-needed relief to taxpayers while stimulating economic activity. If implemented, Budget 2025-26 could mark a win-win for individuals and the broader economy alike.
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