The Union Budget 2025, scheduled for February 1, has created an expectation of major income tax relief for salaried individuals. With inflation and the cost of living increasing, most taxpayers are looking forward to measures that would ease their financial burden. Economists are also advocating for reduced income tax rates and reforms to boost savings, revive demand, and accelerate economic growth.
Why Income Tax Relief Matters in 2025
Experts feel that bringing down income tax rates will have a ripple effect, which could be positive. Low taxes will mean higher disposable income and the ability of families to save more and spend on essentials. This can create consumption in those sectors which are still struggling with low demand. The pre-budget discussions with Prime Minister Narendra Modi have focused on such reforms as steps toward countering the economic challenges.
Previous budgets have brought in changes in the income tax structure, especially in the new tax regime. In 2023, Finance Minister Nirmala Sitharaman increased the standard deduction in the new system from ₹50,000 to ₹75,000. That was a much-needed respite in terms of income tax relief, especially to middle-income earners.
Union Budget 2025: What Past Tax Reforms Tell Us
The last major overhaul was the optional personal income tax regime introduced in 2020-21. It brought in lower tax rates but made it necessary for taxpayers to give up common deductions like the ones under Sections 80C and 80D. While being a simplifying form of taxation, it mostly benefited taxpayers who did not claim any exemptions.
Finance Act 2024 further eased the burden of taxation by raising tax-free income slabs, lowering rates at certain levels, and reducing long-term capital gains tax to 12.5%. However, experts pointed out that the removal of indexation benefits offset some benefits in specific cases.
As the top marginal tax rate is 39% in India, which aligns with global standards, economists also encourage rationalizing effective rates by increasing purchasing power and economic growth. So it is hoped that through Union Budget 2025 announcements, taxpayers will gain income tax relief from tax authorities.
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