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"The Budget announced in July 2024 brought limited changes for individual taxpayers, leaving many to hope that the upcoming Budget 2025 will deliver the much-needed tax relief to alleviate their financial pressures. There is a strong expectation that the government will focus on improving taxpayers' savings by introducing reforms such as a unified tax regime and enhanced deductions.
The Dilemma of Old vs New Tax Regimes - The introduction of two tax regimes - Old Tax Regime (OTR) and New Tax Regime (NTR) - was intended to offer taxpayers flexibility, allowing them to choose the system that best suits their investments, savings habits, and preferences. However, the reality has been far more complex. Many taxpayers find themselves confused between the two regimes, often reassessing their choice not only during the year but also while filing their tax returns. In light of these complexities, the upcoming Budget should focus on simplifying the tax structure for individual taxpayers by consolidating the current dual regimes into a single, cohesive tax framework. While this shift may take time, it is anticipated that the OTR may eventually be phased out, with its abolition ideally scheduled for FY 2026-27 to provide ample time for taxpayers, employers, and financial institutions to adjust.
A Single, More Beneficial Tax Regime - Since the introduction of the NTR, the options for tax savings have been limited, making it essential to reconsider and amend the structure for the benefit of taxpayers. While the NTR is preferred as a streamlined tax system, it can be made even more effective by incorporating the following key changes:
 

Simplification of income tax slabs and rates:

* Increasing the basic exemption limit of income from INR 3 lakhs to INR 5 lakhs

* The differences between tax slabs are currently inconsistent at INR 2 lakhs or INR 3 lakhs. A more uniform approach is needed with consistent income gaps.

* Introducing a new 25% tax rate slab will provide further tax relief for middle-income earners. The tax rates currently stand at 5%, 10%, 15%, 20% and 30%.

* The income limit for the 30% should be enhanced from INR 15 lakhs to INR 20 lakhs.

Inclusion of popular deductions under the NTR:

* Section 80C: Allow deductions up to INR 2 lakhs for life insurance premiums, employees’ Provident Fund contributions, etc.

* Section 80D: Extend the deduction up to INR 1 lakh for health insurance premiums for self and family, addressing the growing burden of medical expenses.

* Section 80TTB: Include a deduction of up to INR 50,000 for senior citizens earning interest from deposits with banks, post offices, etc.

* 10(13A): Allow salaried taxpayers to claim HRA deductions for rental expenditure under the NTR.

 

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