What Budget 2025 means for salaried taxpayers, senior citizens and investors

A Budget for the salaried, senior citizens and students

The middle-class taxpayer’s interests were in focus on February 1, when Finance Minister Nirmala Sitharaman presented her eighth consecutive Budget, second during the Narendra Modi-led National Democratic Alliance's (NDA) third term.

Tax measures announced in Budget 2025 will have a wide-ranging impact on individual taxpayers across income brackets, thanks to ‘nil’ tax on incomes of up to Rs 12 lakh (Rs 12.75 lakh in the case of salaried taxpayers due to the standard deduction), hike in basic exemption limit from Rs 3 lakh to Rs 4 lakh and widening of tax slabs under the new tax regime.

Salaried taxpayers

Income taxpayers ought to be a happy lot after February 1, as they got much more than what they had anticipated. Those earning up to Rs 1 lakh per month will not have to pay any income tax from FY 2025-26.

This is because the tax rebate limit has gone up from Rs 7 lakh to Rs 12 lakh under the old tax regime. Salaried employees and pensioners need not pay tax up to Rs 12.75 lakh, thanks to the flat standard deduction available to them.

In addition, hike in basic exemption limit and widening of tax slabs will leave more money – Rs 1 lakh crore will be the revenue forgone on account of these tax reliefs according to finance ministry estimates - in the hands of taxpayers.

For example, those with an income of Rs 12 lakh will now save Rs 80,000 (100 percent of the tax they were paying so far), while those earning Rs 18 lakh will get a benefit of Rs 70,000 (30 percent of the tax payable as per existing rates). Those earning Rs 25 lakh will net tax-savings of Rs 1.1 lakh (25 percent of their current tax outgo). These figures do not take cess into account.

Nirmala Sitharaman also announced the government's decision to table the new Income Tax bill in the parliament next week which seeks to simplify the rules and language for taxpayers and administrators, potentially reducing disputes.

Investors

The introduction of new income tax slabs is set to increase Indians' disposable income, encouraging higher savings and investments. Though consumption is the buzzword for now, savvy individuals will use the additional money in their hands to invest towards achieving their long-term goals like children’s education and retirement.

Mutual fund investors and the industry were disappointed that the government did not reconsider the withdrawal of indexation benefits available to long-term debt investments. There were expectations that the government could look at taxing capital gains on redemption of debt mutual fund units held for more than one year at the rate of 12.5 percent, in line with the long-term capital gains tax rate for other asset classes. However, these demands remained unmet in the budget.

Senior citizens

The finance minister announced multiple measures aimed at easing the TDS (tax deducted at source) compliance requirements.

The TDS (tax deducted at source) threshold (tax @ 10 percent withheld by banks) for fixed deposit interest income earned by senior citizens will go up from Rs 50,000 to Rs 1 lakh from FY 2025-26. Budget 2025 also raised the annual TDS limit on rent from Rs 2.40 lakh to Rs 6 lakh per year, significantly reducing TDS transactions for those receiving modest rental income. Tenants have to withhold TDS @ 10 percent before transferring the rent amount to their landlords. Since many senior citizens depend on fixed deposit interest and rental income during their retirement years, these measure will mean better cashflows and lower compliance burden.

The finance minister also had relief to offer to individuals - largely senior citizens - who have very old National Savings Scheme (NSS) accounts. As interest is no longer payable on such accounts with effect from September 1, 2024, she has proposed to exempt withdrawals made from NSS by individuals on or after 29th August, 2024

Students, travellers

Budget 2025 has proposed to raise the threshold for withholding Tax Collected at Source (TCS) on overseas remittances through the Liberalised Remittance Scheme (LRS) route from Rs 7 lakh to Rs 10 lakh. More importantly, students and their parents will not have face liquidity issues due to TCS on remittances of over Rs 7 lakh for education purposes (for paying university fees, for example), as Budget 2025 has reduced the rate from 0.5 percent to nil. Do note, however, that this TCS exemption will be available only if the remittance is made out of loans taken from financial institutions.