Union Budget 2025: Income Tax Reforms Middle-Class Expects From FinMin Sitharaman

As the Union Budget 2025 approaches, there's growing anticipation about potential changes to Income Tax policies aimed at providing relief to the common man.

According to a Livemint report, experts have made several suggestions focusing on significant modifications to personal income tax, specific tax areas such as electric vehicles (EVs) and cryptocurrency, housing benefits, savings incentives, and more.

These proposed reforms are designed to ease the tax burden on middle-class taxpayers. Here's a list of income tax reforms that the middle class can expect from Budget 2025:

1) Changes in income tax slabs

The government may consider revising the income tax slabs to offer relief to middle-class taxpayers by potentially lowering individual income tax rates.

"To address inflation, the exemption limit under the income tax regime should be increased to ₹4 lakh, with many taxpayers hoping for a ₹10 lakh limit," said Abhishek Soni, CEO of Tax2Win.

"The government should reduce the income tax rates for individuals earning up to ₹15 lakh annually. This would increase disposable income and stimulate consumption," said Shefali Mundra, a tax expert at ClearTax.

2) Home loan benefits in the new tax regime

Experts suggest that Finance Minister Nirmala Sitharaman should encourage homeownership by offering tax benefits under the new regime, even if these benefits are lower than those under the old tax system.

3) Incentives for homeowners

"Homebuyers may benefit from higher interest deduction limits on housing loans under Section 24(b). The deduction should be allowed for the full interest paid, at least for one property, or the current limit of ₹2 lakh should be increased to ₹3 lakh," said Dhruv Chopra, Managing Partner at Dewan P.N. Chopra & Co.

4) Higher NPS deductions

Abhishek Soni recommends increasing the additional NPS deduction limit from ₹50,000 to ₹1,00,000 and making withdrawals fully tax-free (EEE treatment).

5) HRA for Tier-2 cities

To ensure fair treatment for taxpayers living in high-cost urban centres, Soni recommends extending the 50% HRA exemption category to cities such as Hyderabad, Pune, and Bengaluru.

6) Reforms under Section 80D

Acknowledging the growing health concerns, Shefali Mundra suggests that the tax deduction limits under Section 80D be raised to ₹50,000 for individuals and ₹1,00,000 for senior citizens, up from ₹25,000 and ₹50,000, respectively.

7) Defer TDS on Provident Fund (PF) interest

Abhishek Soni proposes deferring tax deduction on interest exceeding ₹2.5 lakh until withdrawal, to improve taxpayer cash flow.

8) Capital Gains Tax

Niranjan Govindekar, a tax expert at BDO India, believes that some changes from the 2024 budget regarding taxes on investment profits require further review. He suggests taxing similar investments equally, such as treating international and Indian stocks on par or taxing various types of gold investments consistently. He also advocates for removing the Securities Transaction Tax (STT) on stock purchases and sales, as taxes on stock profits have increased (from 15% to 20% for short-term and 10% to 12.5% for long-term).

9) Higher basic exemption limit for senior citizens

Abhishek Soni recommends providing senior citizens with a more generous exemption limit to ease their financial burden.

10) Increase in limit under Section 80C

Revising the Section 80C limit, which has remained at ₹1.50 lakh since 2014, is essential to encourage and promote investments in financial instruments like Tax-Saving FDs, PPF, etc.