Union Budget 2025: Meeting taxpayer demands in an inflationary era
The Union Budget 2025 presents an opportunity for the government to implement reforms that address the complexities of personal income tax as taxpayers eagerly await a simpler tax system.
Written by Surabhi Marwah,
As we approach the presentation of India’s Union Budget for 2025, inevitably personal income tax reforms stand out as a key area of focus. With escalating living costs, there are expectations of reduced income-tax, particularly for the lower-income group to provide fiscal relief and higher disposable income.
A key demand from Budget 2025 is the simplification of India’s tax system.
The government has been proactive in addressing the complexities in the existing tax laws, as evidenced by recent reforms, including the enhancement of tax rebate under section 87A of the Income-tax Act, 1961 (ITA) in 2022, making the Concessional Tax Regime (CTR) the default regime in 2023, and restructuring the CTR in 2024 by reducing the tax slabs and increasing standard deduction limit. Budget 2025 is expected to continue this trajectory by further streamlining the tax system and simplifying compliance requirements.
One significant expectation from Budget 2025 is an increase in the basic income tax exemption limit from Rs 3 lakhs to Rs 5 lakhs in the new tax regime. This move would directly benefit taxpayers by providing much-needed financial relief particularly for the middle and lower-income groups, who are facing inflationary pressures on daily essentials.
Some of the other items on the wish-list for Budget 2025 include:
Widening of House Rent Allowance (HRA) Exemption
Currently, only four metro cities — Delhi, Mumbai, Kolkata, and Chennai — qualify under the bracket of 50 per cent of basic salary for calculation of HRA exemption. However, Tier-2 cities like Hyderabad, Pune, Bengaluru, Gurgaon and Ahmedabad, where housing costs are similarly high, do not receive the same benefit. Hence, including these cities as well under the 50 per cent bracket would ensure greater tax parity and provide relief to a broader section of the working population living in these cities.
Removal of or increase in the cap of Rs 2,00,000 on set-off of house-property loss
Currently, the amount of house property loss that can be set-off against other heads of income in the same financial year is capped at Rs 2,00,000. Removal of or an increase in this ceiling limit would allow taxpayers more flexibility in offsetting their losses, thereby reducing their overall tax burden.
Deferment of tax deduction at source on provident fund (PF)
At present, the PF authorities deduct tax at source (TDS) on the interest earned on employee’s contribution in excess of Rs 2,50,000 per annum while crediting the interest. Deferring this TDS to the stage of withdrawal/ cessation of employment would align the stage of taxation of this interest with that of the interest on overall PF corpus.
The Union Budget 2025 presents an opportunity for the government to implement reforms that address the complexities of personal income tax as taxpayers eagerly await a simpler tax system. With proposals to increase the income tax exemption limit, reduce tax rates for lower-income groups, improve the overall tax system etc., Budget 2025 could significantly reshape India’s tax landscape. These reforms could benefit taxpayers, promote economic development, and foster sustainable growth across the country.
Surabhi Marwah is tax partner at EY India. Ammu Sadanandhan, director, tax and Ojaswita Pathak, tax professional, EY India also contributed to the article.
Written by Surabhi Marwah,
As we approach the presentation of India’s Union Budget for 2025, inevitably personal income tax reforms stand out as a key area of focus. With escalating living costs, there are expectations of reduced income-tax, particularly for the lower-income group to provide fiscal relief and higher disposable income.
A key demand from Budget 2025 is the simplification of India’s tax system.
The government has been proactive in addressing the complexities in the existing tax laws, as evidenced by recent reforms, including the enhancement of tax rebate under section 87A of the Income-tax Act, 1961 (ITA) in 2022, making the Concessional Tax Regime (CTR) the default regime in 2023, and restructuring the CTR in 2024 by reducing the tax slabs and increasing standard deduction limit. Budget 2025 is expected to continue this trajectory by further streamlining the tax system and simplifying compliance requirements.
One significant expectation from Budget 2025 is an increase in the basic income tax exemption limit from Rs 3 lakhs to Rs 5 lakhs in the new tax regime. This move would directly benefit taxpayers by providing much-needed financial relief particularly for the middle and lower-income groups, who are facing inflationary pressures on daily essentials.
Some of the other items on the wish-list for Budget 2025 include:
Widening of House Rent Allowance (HRA) Exemption
Currently, only four metro cities — Delhi, Mumbai, Kolkata, and Chennai — qualify under the bracket of 50 per cent of basic salary for calculation of HRA exemption. However, Tier-2 cities like Hyderabad, Pune, Bengaluru, Gurgaon and Ahmedabad, where housing costs are similarly high, do not receive the same benefit. Hence, including these cities as well under the 50 per cent bracket would ensure greater tax parity and provide relief to a broader section of the working population living in these cities.
Removal of or increase in the cap of Rs 2,00,000 on set-off of house-property loss
Currently, the amount of house property loss that can be set-off against other heads of income in the same financial year is capped at Rs 2,00,000. Removal of or an increase in this ceiling limit would allow taxpayers more flexibility in offsetting their losses, thereby reducing their overall tax burden.
Deferment of tax deduction at source on provident fund (PF)
At present, the PF authorities deduct tax at source (TDS) on the interest earned on employee’s contribution in excess of Rs 2,50,000 per annum while crediting the interest. Deferring this TDS to the stage of withdrawal/ cessation of employment would align the stage of taxation of this interest with that of the interest on overall PF corpus.
The Union Budget 2025 presents an opportunity for the government to implement reforms that address the complexities of personal income tax as taxpayers eagerly await a simpler tax system. With proposals to increase the income tax exemption limit, reduce tax rates for lower-income groups, improve the overall tax system etc., Budget 2025 could significantly reshape India’s tax landscape. These reforms could benefit taxpayers, promote economic development, and foster sustainable growth across the country.
Surabhi Marwah is tax partner at EY India. Ammu Sadanandhan, director, tax and Ojaswita Pathak, tax professional, EY India also contributed to the article.
