On July 23, 2024, Finance Minister Nirmala Sitharaman announced a significant relief for the middle class in the budget for the financial year 2024-25.
The government increased the standard deduction limit from Rs 50,000 to Rs 75,000, providing tax relief in the New Tax Regime. However, many salaried individuals have been requesting relief under the Old Tax Regime as well.
As the Finance Ministry prepares for the 2025 budget, discussions are ongoing about what can be included for the middle class.
Possible Changes in the 2025 Budget
The 2025 budget will be presented on February 1, 2025, marking Finance Minister Sitharaman’s eighth budget. There are ongoing discussions within the Finance Ministry about potential measures to support the middle class.
According to a report in Dainik Jagran, it is expected that the government might offer further tax relief in the upcoming budget, especially for the salaried class, which is the largest group paying income tax.
Increase in Standard Deduction Limit
One of the proposals being considered is increasing the standard deduction limit under the New Tax Regime. Currently, the standard deduction is Rs 75,000 for salaried individuals.
Additionally, those earning up to Rs 7 lakh annually are not required to pay any tax under this regime. Sources suggest that the Finance Ministry is contemplating raising the standard deduction limit from Rs 75,000 to Rs 1 lakh.
However, any income tax relief will likely be limited to the New Tax Regime, as the government continues to promote it while discouraging the Old Tax Regime.
Focus on the New Tax Regime
Reports also indicate that the government is focused on the New Tax Regime and is unlikely to offer relief under the Old Tax Regime. The Finance Ministry has signaled this direction on several occasions.
For instance, in the 2023-24 financial year, nearly 8 crore income tax returns were filed, with 2.79 crore filings from individuals earning between Rs 5 lakh and Rs 10 lakh annually.
Another 89 lakh returns were filed by individuals earning between Rs 10 lakh and Rs 20 lakh, suggesting that tax relief would likely target the roughly 3 crore taxpayers in this income range.