Union Budget 2025: Industry Predicts Major Income Tax Reforms Amid Slowdown

The government is looking into big changes to income tax rules for next year's budget (2025-26), which Finance Minister Nirmala Sitharaman plans to present on February 1, 2025. As per government sources, there are two significant proposals being evaluated: The government is thinking about two new tax slabs: exempting the first ₹10 lakh of earnings currently taxed while raising 30% taxes to 25% on income between ₹15 to ₹20 lakh, replacing the former 30% tax on earnings above ₹15 lakh.

A government official stated, “We are evaluating both options. If our budget allows, we may implement both measures — making income up to ₹10 lakh tax-free and introducing a 25% slab for income between ₹15 lakh and ₹20 lakh.”

The policy changes could take away between ₹50,000 crore and ₹1 lakh crore from government taxes as authorities anticipate more money coming from cities after the reforms take effect. This happens during a critical period when growth in Q2 FY25 GDP has fallen to its lowest level in seven quarters at 5.4%.

Several tax experts have given us their ideas about what these changes might bring. Akhilesh Ranjan, a PwC consultant who worked before with the CBDT, said, “A 25% tax slab for individuals earning between ₹15 lakh and ₹20 lakh could increase consumption by putting more money in the hands of taxpayers likely to spend on consumer durables.”

Ankit Jain, Partner at Ved Jain & Associates, warns about eliminating the old tax system. “The old regime considers actual expenses like rent, home loan repayments, and school fees. Retaining it as an option would accommodate diverse taxpayer needs,” he said.

Taxpayers and industries alike are eagerly awaiting announcements in Budget 2025, which could redefine personal finance and economic growth.