Budget 2025: Key Income Tax Changes to Expect – Revised Slabs, Higher Standard Deduction, and Section 80C Limit Increase

As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2025-26 on February 1, various tax reforms are anticipated to provide relief to salaried individuals. Here are the top five income tax changes expected in the upcoming budget:

1) Increase in Standard Deduction

A significant change being discussed is an increase in the standard deduction for salaried employees and pensioners. Currently, the deduction is ₹50,000 under the old tax regime and ₹75,000 under the new regime. Experts suggest linking this deduction to a percentage of an individual’s income, with a maximum cap of ₹1 lakh. This adjustment aims to offer more support to higher earners amid rising inflation and cost of living.

2) Revised Income Tax Slabs

There is speculation that the government may revise income tax slabs under the new tax regime to encourage more taxpayers to opt for it. One expected change is applying the 30% tax rate to income above ₹20 lakh, which would better align with the current economic landscape. The existing tax slabs under the new regime are:

₹0-₹3 lakh: Nil

₹3-₹7 lakh: 5%

₹7-₹10 lakh: 10%

₹10-₹12 lakh: 15%

₹12-₹15 lakh: 20%

Above ₹15 lakh: 30%

3) Tax Reforms for Senior Citizens

In response to the needs of senior citizens, there’s a possibility that the government will introduce tax reforms that benefit individuals aged 60 and above. This may involve raising the exemption limit or reducing tax rates for senior citizens, similar to the old tax regime, which had higher exemption limits for this group.

4) Increase in Section 80C Deduction Limit

The Section 80C deduction limit, which is currently capped at ₹1.5 lakh, may see an increase. Experts suggest raising it to ₹3.5 lakh to help taxpayers cope with inflation and rising living costs. This increase would allow more room for tax-saving investments like PPF, life insurance premiums, and ELSS.

5) Possible Hike in Import Duty on Gold

Concerns regarding India's trade deficit might prompt an increase in the import duty on gold in Budget 2025. Currently, the import tax on gold stands at 6%, reduced from 15% in previous years. A potential hike could curb gold imports, helping reduce the trade imbalance, but it may also lead to higher domestic gold prices.

As the budget date approaches, these potential changes reflect the government's efforts to provide tax relief and address the financial challenges faced by citizens.