Income tax news: Will FM Nirmala Sitharaman announce tax relief for taxpayers earning up to ₹15 lakh in Budget 2025?

Every year, India’s salaried class eagerly awaits relief in income tax. This year, the middle class is also penning all their hopes for FM Nirmala Sitharaman when she presents Budget 2025 on 1 February. According to a Reuters report, the government is actively considering tax relief for the middle class, particularly earning up to ₹15 lakh annually. February 1 2025 Budget may include an announcement of the possible tax breaks. This action is intended to boost consumer spending and stimulate the economy. Livemint couldn’t independently verify the information.

Income tax budget: Who will benefit?

If this is implemented, millions of taxpayers might benefit greatly, especially city dwellers struggling with high living costs. According to the Reuters report, those choosing the 2020 tax scheme, which excludes exclusions like those for housing rents, would be eligible for this.

Two tax options for income taxpayers

Two options are now available to Indian taxpayers: the Old and New Tax Regime. Under the Old Tax Regime, rent and insurance exemptions are allowed, among other expenses. The New Tax Regime lowers tax rates while doing away with most exemptions. The choice that best fits their financial situation is up to the taxpayers to choose.

New income tax regime

Individuals earning up to ₹3 lakh annually are exempt from income tax under the new tax regime that was implemented in 2020. Income between ₹3 and 7 lakh will be subject to a 5% tax, income between ₹7 and 10 lakh to a 10% tax, and income between ₹10 and 12 lakh to a 15% tax. Furthermore, income between ₹12 and 15 lakh would be subject to a 20% tax, while income over ₹15 lakh will be subject to a 30% tax.

Old income tax regime

Under the Old Tax Regime, income up to ₹2.5 lakh is exempt from taxation. For income between ₹2.5 lakh and ₹5 lakh, a tax rate of 5% is applied. Personal income ranging from ₹5 lakh to ₹10 lakh is taxed at 20%, while income exceeding ₹10 lakh is taxed at the highest rate of 30%. This structure allows taxpayers to benefit from various exemptions, including deductions for expenses such as house rent and insurance premiums, providing more flexibility based on individual financial situations.

₹5 lakh to ₹10 lakh- 20%.

Income above ₹10 lakh- 30%.

According to a government source cited in the Reuters report, lowering the tax rate would encourage more individuals to opt for the new, more straightforward tax regime. The report also highlighted that a significant portion of India’s current income tax revenue comes from individuals earning at least ₹10 lakh. Under the old tax regime, these earners are taxed at 20%, while the new tax regime imposes a 10% tax rate.

Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited, suggests that cutting personal income tax for individuals earning up to ₹1.5 million annually could stimulate urban middle-class consumption, which has been affected by inflation and rising living costs.

He added that the consideration of this proposal reflects the view of government officials as it relates to middle-class issues, which also revolve around the need and desire to start a consumption-based growth model.

Budget 2025

Finance Minister Nirmala Sitharaman is expected to table the Union Budget 2025 on February 1, 2025. The July presentation of Budget 2024 included many modifications to the income tax laws.

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