The Union Budget 2025-26 is expected to make significant changes to the income tax slabs, with reports suggesting that income up to Rs 10 lakh may be made tax-free and a new tax slab of 25% may be announced for income between Rs 15 lakh and Rs 20 lakh. As of January 22, 2025, the government is evaluating these options and is set to face a revenue loss of Rs 50,000 crore to Rs 1 lakh crore as the impact of such income tax relief. Salaried taxpayers with income up to Rs 20 lakh annually are likely to get substantial relief in the upcoming Budget to be presented by Finance Minister Nirmala Sitharaman on February 1.
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Some key points to consider:
The new tax regime may introduce a 25% tax slab for income between Rs 15 lakh and Rs 20 lakh, reducing the tax burden on middle-class taxpayers.
The government is considering making income up to Rs 10 lakh completely tax-free, which could benefit a large number of taxpayers.
The revenue loss from such income tax exemption is estimated to be between Rs 50,000 crore and Rs 1 lakh crore, which the government is willing to bear. Think tank Global Trade Research Initiative (GTRI) has recommended significant tax reforms ahead of the Union Budget 2025-26, including raising the income tax exemption limit to Rs 5.7 lakh and increasing certain deductions and exemptions. The budget is expected to prioritise reforms aimed at boosting growth, job creation and demand in the economy, especially when India's GDP growth has fallen to a two-year low of 5.4% in the second quarter. Income Tax Slab Details The current income tax slabs are as follows:
Income Slab Tax Rate
Up to Rs 2.5 lakh 0%
Rs 2.5 lakh - Rs 5 lakh 5%
Rs 5 lakh - Rs 7.5 lakh 10%
Rs 7.5 lakh - Rs 10 lakh 15%
Rs 10 lakh - Rs 12.5 lakh 20%
Rs 12.5 lakh - Rs 15 lakh 25%
Above Rs 15 lakh 30%
The proposed changes in the income tax slabs, which include the introduction of a 25% tax slab for income between Rs 15 lakh and Rs 20 lakh and making income up to Rs 10 lakh tax-free, are expected to provide relief to taxpayers and boost economic growth.
Impact on taxpayers The proposed changes in the income tax slabs are likely to have a significant impact on taxpayers, especially those in the middle class category. Applying a 25% tax slab on income between Rs 15 lakh and Rs 20 lakh could reduce the tax liability of taxpayers falling in this bracket. Further, making income up to Rs 10 lakh tax-free could benefit a large number of taxpayers and increase their disposable income.
Government revenue deficit The government's revenue deficit from the proposed income tax relief is estimated to be between Rs 50,000 crore and Rs 1 lakh crore. However, the government is willing to bear this loss to provide relief to taxpayers and boost economic growth.
Think tank recommendations Think tank Global Trade Research Initiative (GTRI) has recommended key tax reforms ahead of the Union Budget 2025-26. These recommendations include raising the income tax exemption limit to Rs 5.7 lakh, adjusted for inflation, and increasing certain deductions and exemptions, such as increasing the Rs 10,000 deduction for savings interest to Rs 19,450 by 2025 and adjusting the Rs 1.5 lakh deduction for insurance premium and PF contributions to Rs 2.6 lakh.