Union Budget 2025 will be presented by Finance Minister Nirmala Sitharaman. She will come with various possible income tax reforms that might offer relief to salaried people and could assuage the inflationary concerns. Major 5 changes that are expected in the budget are -

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1. Changes to Income Tax Slab Rates

The government would most likely offer more incentives in the new tax regime to attract taxpayers. Another massive proposal is for revision of income tax slab rates dependent on economic and inflation conditions. The regime will therefore be more progressive.

Current Tax Slabs Under the New Regime:

₹0-₹3 lakh: Nil

₹3-7 lakh: 5% (on income exceeding ₹3 lakh)

₹7-10 lakh: 10% (on income exceeding ₹7 lakh)

₹10-12 lakh: 15% (on income exceeding ₹10 lakh)

₹12-15 lakh: 20% (on income exceeding ₹12 lakh)

Above ₹15 lakh: 30% (on income exceeding ₹15 lakh)

2. Special Tax Slabs for Senior Citizens

Currently, the new tax regime provides uniform slabs for all taxpayers irrespective of age.  It is expected that govt. may introduce differentiated tax slabs for senior citizens, with higher exemption limits or lower tax rates for above-age-60 persons. This move would further favour senior citizens, who have fixed or reduced incomes.

3. Enhanced Standard Deduction

The standard deduction for salaried employees and pensioners currently is ₹50,000 under the old tax regime and ₹75,000 under the new regime. This amount is expected to be raised because of rising costs.

4. Possible Increase in Import Duty on Gold

To address concerns related to the trade deficit, the government might increase the import duty on gold. Following a reduction in import duty from 15% to 6% in the 2024 budget, this measure was intended to reduce excessive imports. However, a reversal or adjustment might be on the cards in the 2025 budget to mitigate economic pressures.

Such moves could lead to domestic price adjustments and divergence from international gold prices. India currently imposes a 6% import tax on gold.

5. Increased Section 80C Deduction Limit

This section 80C deduction limit has increased only a little over the years, increasing from ₹1 lakh in 2003 to ₹1.5 lakh in 2014. Experts believe that the hike hasn't been aligned with inflation and rising living costs.

In the upcoming budget Section 80C limit might be increased to ₹3.5 lakh so that relief is felt meaningfully by taxpayers. In addition, it is recommended that housing loan interest be separated from Section 80C and given an independent higher cap. The housing loan interest deduction is now clubbed with other deductions such as PPF, ELSS, and life insurance premiums under the ₹1.5 lakh cap, which has limited its utility for homebuyers.

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Conclusion

The expected income tax reforms in Budget 2025 will be directed towards making the tax system more progressive and aligned with the current economic conditions. Changes in tax slabs, enhanced deductions, and adjustments in import duties are steps that could provide much-needed relief to taxpayers while addressing broader economic challenges. Salaried individuals and senior citizens, in particular, stand to benefit from these measures if implemented.