Middle-Class Relief in Budget 2025? Key Tax Changes to Watch

With Budget 2025 approaching, middle-class taxpayers are hopeful for revisions that could ease their financial burden. As Finance Minister Nirmala Sitharaman prepares to present her eighth consecutive Union Budget on February 1, expectations are high for reforms that could boost disposable incomes and support long-term financial stability.

3 Income Tax Changes That Could Benefit the Middle Class

1) Standard Deduction Increase

The standard deduction is a fixed amount subtracted from taxable income, reducing the overall tax liability. A higher deduction means lower taxable income, ultimately leading to tax savings.

For instance, if your gross salary is ₹10,00,000, a standard deduction of ₹75,000 brings your taxable income down to ₹9,25,000. If the deduction were raised to ₹1,00,000, your taxable income would further reduce to ₹9,00,000.

"The government may consider changes to the new tax regime, including an increase in the standard deduction for salaried employees and pensioners from ₹75,000 to ₹1 lakh," said Pankaj Mathpal, MD & CEO of Optima Money Managers.

2) Higher Income Tax Rebate

Under Section 87A of the Income Tax Act, individuals earning up to ₹7 lakh currently pay no tax due to a rebate. Experts suggest this threshold could rise to ₹8 lakh, providing relief to more taxpayers.

"This limit may be increased by ₹1 lakh, effectively making income up to ₹8 lakh tax-free," Mathpal added.

3) New Tax Slabs

The government may also revise tax slabs under the new tax regime to make it more appealing. Proposed slabs include:

• Income up to ₹4 lakh - Nil
• ₹4 lakh to ₹8 lakh - 5%
• ₹8 lakh to ₹10 lakh - 10%
• ₹10 lakh to ₹12 lakh - 15%
• ₹12 lakh to ₹15 lakh - 20%
• Above ₹15 lakh - 30%

If implemented, these changes could allow taxpayers to retain more of their earnings, improving their financial well-being.

Budget 2025: No Major Changes Expected in the Old Tax Regime

The government is focused on promoting the new tax regime, making significant revisions to the old regime unlikely.

"As the government aims to push the new tax system, an increase in deductions under Sections 80C to 80U or Section 24(b) (home loan interest deduction) is not expected," Mathpal explained.

Meanwhile, former Infosys CFO TV Mohandas Pai highlighted the financial strain on the middle class due to rising inflation, increasing EMIs, and soaring education costs. "The middle class is frustrated with high taxes and declining quality of life," Pai told Mint.

All Eyes on Budget 2025

As FM Sitharaman gears up to present the Union Budget on February 1, the middle class eagerly awaits potential tax relief and reforms that could improve their financial outlook. Will Budget 2025 bring the much-needed changes? The nation waits to find out.