When did the Union Budget Announce a Major Tax Relief?

The expectations among salaried individuals are high for a major income tax relief as the Union Budget is expected to be presented on February 1, 2025. As per media reports, Economists have urged the government to ease the burden of taxpayers by bringing tax-friendly reforms. This will help in ensuring a surge in disposable income, which will in turn revive demand in the sectors hit by sluggish consumption.

During the last Union budget, the centre did not make changes to the old tax regime but introduced changes to the new tax regime. The standard deduction under the new tax regime was increased from ₹50,000 to ₹75,000.

The scope of the standard deduction was increased in the 2023 budget, wherein individual taxpayers in the new regime could claim ₹50,000, while pensioners could deduct up to ₹15,000. Salaried individuals who earn ₹15.5 lakh or more are eligible for a tax benefit of ₹52,500.

Previous tax reliefs

“The last significant income tax relief for individual taxpayers was announced in the Union Budget for the financial year 2020-21, which introduced a new and optional personal income tax regime, said Ajinkya Gunjan Mishra, Tax Partner at S&R Associates.

The newly introduced regime came up with lower tax rates but required taxpayers to forgo common exemptions and deductions, such as those under Sections 80C and 80D. Mishra opined that the primary objective was to simplify the tax system and provide relief to middle-income earners.

He added, “The introduction of reduced tax rates under the optional regime has particularly benefited middle-income taxpayers who do not claim deductions or exemptions.”

As per the global standards, India’s income tax structure is moderate. India’s basic exemption limit of Rs 3.5 lakh is lower than Singapore’s Rs 6-7 lakh, but is still higher than many European nations.

Dipesh Jain, Partner at Economic Laws Practice said, “The new tax regime expanded the basic tax-free income slab limits, reduced tax rates at certain income levels, and increased the standard deduction from Rs 50,000 to Rs 75,000.”

Tax rate on long-term capital gains was reduced from 20% to 12.5%. To this, Jain said, “This change may not always be beneficial due to the removal of the indexation clause, which in some cases increases the tax burden.”

Under the new tax regime, India’s top marginal tax rate is 39%, which is at par with the global averages. While the US has a top tax rate of 37%, UK levies at 45%. Australia, Germany, and Japan also have top rates of around 45%.

“To increase purchasing power and boost the economy, the government could consider rationalising effective tax rates along with other measures," said Jain.