Income Tax Expectations Highlights (January 28): Will Union Budget 2025 scrap old tax regime?

Data shows 88 percent of salaried tax payers earn less than Rs 15 lakh a year and contribute a mere 20 percent of tax collections. Lifting the tax threshold to Rs 15 lakh and levying a tax of 25 percent and 30 percent on the next two slabs can release up to Rs 2.4 lakh crore into the hands of salaried taxpayers. A lot of this tax relief will be recouped by the government in the form of GST accruing from higher consumption. It’s a win-win idea. (Read More)

The Central Government has introduced the Unified Pension Scheme (UPS) as an option under the National Pension System (NPS) for Central Government employees. The Pension Fund Regulatory and Development Authority (PFRDA) will regulate the scheme and issue operational guidelines. The UPS will come into effect on April 1, 2025.

The recent changes in tax slabs and standard deductions provide significant relief to the middle-income group, offering them more disposable income. Additionally, the government has made efforts to promote the new tax regime by making it more attractive, encouraging people to adopt it. The increase in exemptions on long-term capital gains (LTCG) is expected to shift investment patterns, with individuals prioritizing long-term investments. Furthermore, the imposition of Tax Collection at Source (TCS) on luxury goods will enable the government to closely monitor high-value transactions, helping to track large purchases and reduce tax evasion.

A Tax Collection at Source (TCS) has been implemented on luxury goods worth over Rs 10 lakh, effective from January 1, 2025. This measure is intended to track high-value transactions and curb tax evasion.

• The tax rate on short-term capital gains (STCG) has been raised from 15% to 20%.
• The tax rate on long-term capital gains (LTCG) has been increased from 10% to 12.5%.
• Additionally, the LTCG exemption limit for equity investments has been increased from Rs 1 lakh to Rs 1.25 lakh.
• These changes are designed to encourage long-term investment by investors.

The deduction limit on an employer's contribution to the National Pension System (NPS) has been raised from 10% to 14%. This adjustment is expected to encourage employees to save more towards their retirement funds.

• The standard deduction limit has been raised from Rs 50,000 to Rs 75,000.
• Additionally, the limit for family pensioners has been increased from Rs 15,000 to Rs 25,000.
• These changes are expected to offer relief to both salaried and retired taxpayers.

• Rs 0-3 lakh: 0% tax
• Rs 3-7 lakh: 5% tax
• Rs 7-10 lakh: 10% tax
• Rs 10-12 lakh: 15% tax
• Rs 12-15 lakh: 20% tax
• Above Rs 15 lakh: 30% tax

Over the years, several changes have been introduced in the new tax regime, including revisions to income tax slabs, an increase in the basic exemption limit, and the introduction and subsequent hike in the standard deduction for salary income.

The Union Budget 2025 is set to be presented on February 1, 2025. Speculation suggests that Finance Minister Nirmala Sitharaman may announce income tax rate cuts to stimulate consumption and offer relief to middle-class and salaried individuals.

Tax experts widely expect changes to the income tax slabs under the new tax regime in Budget 2025. Since its launch in Budget 2020, the government has regularly revised the new tax regime while keeping the old tax regime unchanged.