Budget 2025: From Changes In Tax Slabs To Higher Deduction Limits, A Look At The Tax Experts' Wishlist

With FM set to table the Budget 2025, tax experts and stakeholders remain optimistic of major changes in the tax regime, specifically helpful for the middle-income groups in society.

Anjali Sane, Dean - School of Economics and Commerce, MIT-WPU, stated that there is expectation of an increase in the income tax exemption limit to Rs 15 lakh and removal of the STT. 

Source : ABPLIVE AI

With Budget 2025 around the corner, the public is keenly on the lookout for what changes the financial blueprint will bring in the Indian economy. Finance Minister Nirmala Sitharaman is scheduled to table the Union Budget for the incoming fiscal year on February 1, 2025. Industry executives, stakeholders, and market participants are eagerly waiting if the new Budget will have any major changes in the tax slabs or deduction limits. Here are some of the major expectations from some of the experts from the incoming Budget.

Tax Benefits For Debt Funds

One of the major hopes of the mutual fund industry is to see the restoration of tax benefits for debt funds. Achin Goel, VP, Bonanza Portfolio Ltd argued that after the Budget 2024 removed the long-term indexation benefits, debt fund investors have been impacted significantly. “Industry leaders argue that reintroducing indexation would help neutralize inflation's impact on capital gains, making debt investments more attractive again. Also, there is a demand for rollback of recent capital gains tax hikes, which deterred retail investors from engaging with mutual funds,” the executive said.

TCS On Forex Transactions

Pavan Kavad, Managing Director, Prithvi Exchange hopes that the Budget will introduce a uniform TCS rate across forex transactions. The expert noted that currently 0.5 per cent TCS is applicable for foreign exchange transactions above Rs 7 lakhs if the education loan is taken from a commercial bank or Section 80E recognised entity. “Our recommendation is that the taxation rate must be rationalised to establish uniformity in the industry. A consistent TCS rate of 0.5 per cent should be applied to forex availed if education loans availed from any NBFC or bank. This will create fairness and bring clarity for all stakeholders,” he added.

Revisions In Tax Slabs

Goel remained optimistic about a change in the income tax slabs. He noted that any tax relief would boost disposable income, specifically for the middle-income group and also enhance consumer spending. This, in turn, he argued that would promote economic recovery. 

Anjali Sane, Dean - School of Economics and Commerce, MIT-WPU, stated that there is expectation of an increase in the income tax exemption limit to Rs 15 lakh and removal of the Securities Transaction Tax (STT). 

Sane expressed optimism that the Section 80C deduction threshold could rise to Rs 50,000-75,000 under the new tax regime. She added that the STCG tax burden of 20 per cent could also be decreased to 15 per cent. She also suggested a new LTCG tax slab structure, wherein, no tax would be levied on upto Rs 1 lakh. While, the income bracket of Rs 1-2 lakh would attract a tax slab of 5 per cent, while 10 per cent slab would be applicable on Rs 2-5 lakh income range. The structure would see income above Rs 5 lakh incur a tax of 12.5 per cent, Sane noted.

Raise Deduction Limits

Experts anticipate an increase in the tax deduction limits under several sections. For instance, Goel noted that a hike in deduction limit under Section 80D for health insurance premium would be a major relief. “Expectation for raising tax deduction limits under 80D to Rs.50,000 (Rs.1,00,000 for Seniors) from Rs.25,000 (Rs.50,000 for Seniors) and include section 80D in the new tax regime to promote insurance penetration and will be positive for health insurance companies like Star Health. Expectation is also for increasing the limit under section 24(b) to Rs.2-3 lacs from Rs.1.5 lacs to promote home buying and boost real estate sector,” Goel added.

Suresh Darak, Founder, Bondbazaar, said, “Over the past few budgets, tax rates for various investment instruments and income streams have been gradually streamlined, reducing exceptions and differential treatments. This has brought several options, such as Fixed Deposits, Debt Mutual Funds and Bonds, onto a level playing field by taxing them similarly. This alignment eliminates arbitrage opportunities between instruments and fosters a more balanced investment landscape.”

Darak added hopes of a simpler and unified approach to taxation going ahead, and a complete revision in the personal income tax structure.

Tax Requirements Of Foreign Investors

Expressing the major need of foreign investors in India, Prashant Bhojwani, Partner, Corporate Tax, Tax & Regulatory Services, BDO India, said that tax certainty and reduced timeline for litigation are the prominent requirements at the moment. The expert called for strengthening the framework of the Board for Advance Rulings and re-introduce the binding nature to provide much-needed certainty from a tax point of view for foreign investors.

“The number of Commissioner (Appeals) needs to be increased to adjudicate pending appeals in an accelerated manner. A strict timeline (say 9 or 12 months) should be introduced to dispose of the appeals, similar to dispute resolution panel timelines. Both the above measures will enhance foreign investor confidence, positioning India as a preferred destination for doing business,” he suggested.