As the Union Budget 2025 approaches, individual taxpayers are expecting favorable personal tax reforms that could provide them a financial windfall by way of reduction in their tax outflows. At the same time, considering the expansive changes in the previous Budget encompassing capital gains tax rationalization, enhanced concessions in new tax regime etc. there is also a need for consistency and predictability in the tax laws. The Government now has an onerous task of enabling more disposal income to address the current consumption downturn, while also maintaining the fiscal consolidation and maintaining the tax base.
With the overhaul of the existing Income-tax laws on the anvil, the focus in the upcoming Budget is more likely to be on simplification. However, there may still be some room to include a few tax concessions to benefit the individual taxpayers.
Aligned with the Government’s endeavor to eventually phase out the old tax regime, there may be few more tweaks to the new tax regime. This would help to make it the natural choice for the 28 percent taxpayers, who as per the statistics published as on 31 July 2024 for FY 2024-25, seem to have still opted for the old tax regime.
With the tax slabs under the new regime recently modified in last Budget, there may be limited tinkering on this front. However, it is widely expected that the income limits up to which 100 per cent tax rebate is available for resident individuals is enhanced from INR 7 lakhs to INR 10 lakhs of income.
While the objective is to keep minimum exemptions in the new regime, to allow a level playing field between the two regimes, there is a case to also allow the exemption of House Rent allowance (HRA) in the new tax regime. This will ease the burden of salaried individuals moving across the country for jobs and incurring high rental costs. In addition, it has been a long standing ask that the eligibility for the higher 50 percent exemption for HRA should be expanded to also include Tier 2 cities, to provide more equitable tax benefits in these rapidly growing urban centers. It also features in the wish list that the deduction of INR 2 lakhs per annum towards interest on loan for self-occupied property is extended to the new tax regime.
Tax reforms such as deferment of taxation on interest on employee provident fund contributions exceeding INR 2.5 lakhs per annum, to the event of withdrawal/ cessation of employment will ease the cash flow pressure of having to pay tax before these funds can be accessed.
In the direction of easing out the compliance burden, there is a pressing need to consolidate and reduce the existing multiple Tax Deduction at Source (TDS) provisions and rates, to make it less cumbersome and reduce ambiguities. Even in the case of non-residents, there are onerous TDS compliances on various transactions such as transfer of property, simplification of which would provide much needed relief.
Further, while faceless assessments and appeals have been well-received, there remains a significant backlog in resolving the pending disputes. While the Government has taken steps in this regard with reintroduction of the Vivad se Vishwas Scheme 2024, providing more benches at these levels, introducing mandatory timeframes for disposal will further help in timely resolutions.
In summary, the taxpayers remain optimistic about fiscal reforms that could alleviate their financial pressures and increase their disposable incomes. Considering the inflationary trends, geopolitical dynamics, stock market volatility and depleting currency, it remains to be seen how the Government will balance the expectations of all the stakeholders.
A version of this article was published by The Financial Express Online. The same can be read here
