New tax regime 2025 (budget 2025 highlights)
No Income Tax Up to ₹12 Lakh: What It Could Mean
Stay tuned for the official announcements in February 2025, where the Finance Minister will provide clarity on the government’s plans for income tax reform and potential benefits for salaried individuals.
Proposed Change for 2025 (Hypothetical):
- Up to ₹5 lakh: No tax (as is currently available for most taxpayers under Section 87A).
- ₹5 lakh to ₹12 lakh: Tax rates might be reduced or eliminated, or replaced by lower tax rates, such as 5% or 10% on income above ₹5 lakh.
This change would effectively mean no tax for individuals earning up to ₹12 lakh, or at most, very low tax rates.
Impact on Middle-Class Taxpayers
If the 2025 Union Budget introduces no income tax for individuals up to ₹12 lakh, it would be a major step toward simplifying the tax system and boosting disposable income for middle-class individuals.
- Salaried Individuals: People in this income range would have greater financial flexibility, which could help stimulate spending in the economy.
- Small Businesses & Entrepreneurs: With more money in hand, individuals might spend more on goods and services, indirectly benefiting small businesses and entrepreneurs.
- Increased Consumer Confidence: As individuals take home more of their salary without worrying about high taxes, it would likely lead to a boost in consumer sentiment and overall economic activity.
Potential Sources of Revenue for the Government
To make up for the potential loss in revenue from not taxing individuals below ₹12 lakh, the government could look at alternative ways to boost income, including:
- Increasing Taxes on High-Income Earners: The government could revise the upper income tax slabs to increase taxes for the wealthiest individuals, especially those earning above ₹15 lakh or ₹20 lakh.
- Corporate Tax Reforms: We could also see the government introducing measures to increase corporate tax collections or encourage businesses to improve compliance.
- GST Reforms: Improved GST collection and potential rate rationalization could also offset any loss of revenue from income tax cuts.
Corporate Taxation: Support for Businesses and Startups
India has already lowered corporate tax rates to make the country more attractive for businesses, but 2025-26 might see further steps to support entrepreneurs and business growth.
- Incentives for Green and Sustainable Businesses: The government might introduce tax breaks for companies that invest in clean energy, renewable resources, and carbon-neutral technologies.
- Tax Benefits for Startups and MSMEs: We could expect an extension of tax holidays or easier access to incentives for startups and micro, small, and medium enterprises (MSMEs), promoting innovation and job creation.
- Rationalizing Minimum Alternate Tax (MAT): MAT could be re-evaluated, particularly to make the system more transparent and reduce compliance burdens on businesses, especially in the technology and manufacturing sectors.
GST Reforms: Simplification and Rate Rationalization
GST has been a game-changer for India’s tax structure, but it still has room for improvement. The Budget could address the following GST-related changes:
- Consolidation of GST Slabs: The government may simplify GST by reducing the number of tax slabs from four (5%, 12%, 18%, and 28%) to fewer categories, possibly consolidating the 12% and 18% slabs.
- GST on E-Commerce: The digital economy is growing rapidly, and we might see new rules that ensure a level playing field for both traditional brick-and-mortar businesses and e-commerce giants like Amazon and Flipkart. Expect tighter regulations on e-commerce platforms.
- Easing GST Compliance: Efforts to digitize and simplify the GST filing process could be ramped up. The introduction of AI and automation in GST return filing could streamline the process and reduce errors.
Taxation on Digital Assets: Regulation and Clarity
As cryptocurrencies, NFTs, and other digital assets grow in popularity, the Indian government may seek to provide more clarity on the taxation and regulation of these assets:
- Clear Guidelines for Crypto Taxation: The Budget could lay out clear guidelines regarding the tax treatment of cryptocurrencies and digital assets, especially focusing on capital gains tax and whether losses from such assets can be carried forward.
- Tax on Decentralized Finance (DeFi): With the rise of DeFi platforms, we may see the government introduce new taxation laws for decentralized financial activities, ensuring proper tax collection and regulation in this growing space.
Focus on Healthcare: Support for the Sector
In the wake of the COVID-19 pandemic, the government might focus on healthcare reforms and health insurance provisions in the 2025-26 Budget:
- Increased Allocation for Public Healthcare: The government could increase spending on public health infrastructure, including setting up more hospitals, improving access to healthcare in rural areas, and creating a national health insurance scheme for vulnerable populations.
- Tax Incentives for Health Insurance: Expect increased tax deductions for health insurance premiums under Section 80D. This could apply not just to individuals but also to corporates who provide healthcare benefits to their employees.