Union Budget 2025: A Dream Budget for the Indian Middle Class

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, introduces a new income tax bill aimed at simplifying the tax system and providing relief to the middle class. This new bill is expected to be about half the volume of the current law, making it easier for taxpayers to understand. The budget also focuses on various tax incentives and reforms. Let's dive into the key changes and what they mean for taxpayers.

Overview of the New Income Tax Bill

Simplification and Clarity:

• The new income tax bill aims to be simple and easy for taxpayers to understand.

• It is designed to reduce litigation and provide tax certainty, adopting the concept of "trust first, scrutinize later."

Focus on Middle Class:

• The budget provides significant tax relief to the middle class, with potential changes to income tax slabs and rates.

• The new tax regime is expected to become more attractive, eventually phasing out the old regime.

Key Changes and Expectations

1. Income Tax Slabs:

   • New Tax Regime (FY 2025-2026):

     • Up to ₹4,00,000: Nil

     • ₹4,00,001 to ₹8,00,000: 5%

     • ₹8,00,001 to ₹12,00,000: 10%

     • ₹12,00,001 to ₹16,00,000: 15%

     • ₹16,00,001 to ₹20,00,000: 20%

     • ₹20,00,001 to ₹24,00,000: 25%

     • Above ₹24,00,000: 30%

     
     

   • Old Tax Regime:

     • Up to ₹2.5 lakh: Nil

     • ₹2.5 lakh to ₹5 lakh: 5%

     • ₹5 lakh to ₹10 lakh: 20%

     • Above ₹10 lakh: 30%

     
     

2. Tax Relief for Middle Class:

   • The budget exempts annual income up to ₹12 lakh from income tax, but with certain caveats. It is essential to understand the fine print for better tax planning.

   
   

3. Extension of Deductions:

   • The tax benefits available to the National Pension Scheme (NPS) under Section 80CCD(1B) of the Income Tax Act, 1961, will be extended to contributions made to the NPS Vatsalya accounts.

   
   

4. Boost to Insurance Sector:

   • The FDI limit for the insurance sector has been raised to 100% from 74%.

   
   

5. Senior Citizen Benefits:

   • The tax deduction threshold for senior citizens has been increased to ₹1 lakh from ₹50,000.

   
   

6. TCS Relief:

   • The Tax Collected at Source (TCS) threshold for the Liberalised Remittance Scheme (LRS) has been increased to ₹10 lakh.

   • TCS has been removed for remittances related to education purposes.

   
   

7. Updated Tax Returns:

   • The time limit for filing updated tax returns has been extended from two years to four years.

   
   

Real-Life Scenario

Imagine you are a salaried individual earning ₹15 lakhs annually. Under the new tax regime for FY 2025-2026, your tax liability would be calculated as follows:

• Up to ₹4 lakhs: Nil

• ₹4 lakhs to ₹8 lakhs: 5% of ₹4 lakhs = ₹20,000

• ₹8 lakhs to ₹12 lakhs: 10% of ₹4 lakhs = ₹40,000

• ₹12 lakhs to ₹15 lakhs: 15% of ₹3 lakhs = ₹45,000

Total tax liability = ₹20,000 + ₹40,000 + ₹45,000 = ₹1,05,000

A Thought to Ponder

Would you rather navigate a complex tax system with numerous exemptions or embrace a simplified tax regime that provides clarity and certainty?

Conclusion

The Union Budget 2025 introduces significant tax reforms through the new income tax bill, focusing on simplifying the tax system and providing relief to the middle class. The new tax regime offers attractive tax slabs and rates, making it more appealing to taxpayers. While the old tax regime may continue for a transitional period, the government seems to be pushing towards a more streamlined and simplified tax system. Understanding the fine print and planning your taxes accordingly can help you maximize your savings and financial benefits. Start exploring the new tax regime today and take the first step towards better tax planning and financial management.