Budget 2025: Key Income Tax Proposals

As India approaches the Union Budget for 2025, discussions around income tax reforms are heating up. Finance Minister Nirmala Sitharaman is expected to address various financial concerns in her upcoming budget. Adhil Shetty, the CEO of BankBazaar, has put forth several recommendations aimed at improving the income tax structure. These proposals focus on raising the income tax threshold, restructuring tax brackets, and introducing a standardized deduction system. This article delves into these suggestions and their potential impact on taxpayers.

Raise the 30% Income Tax Slab to โ‚น18 Lakh

One of the most pressing issues highlighted by Shetty is the need to raise the 30% income tax slab from โ‚น15 lakh to โ‚น18 lakh. This threshold has remained unchanged since 2020, despite a significant 21% increase in the Cost Inflation Index. Shetty argues that this adjustment is essential to reflect the realities of inflation and to provide relief to urban salaried individuals who are grappling with rising living costs.

By increasing the threshold, the government can distribute the tax burden more equitably among higher-income earners. This change would not only ease the financial strain on many taxpayers but also align the tax system with current economic conditions. Shetty emphasizes that such a move would be a step towards a fairer taxation system, ensuring that those who earn more contribute appropriately while also considering the economic pressures faced by the middle class.

In summary, raising the 30% tax slab to โ‚น18 lakh could provide much-needed relief to taxpayers and promote a more equitable tax structure in India.

Enhance Income Tax Brackets for Fairness

While there are calls to increase the tax-free income limit to โ‚น10 lakh, Shetty warns that this approach could inadvertently shift the tax burden onto higher earners. He advocates for a comprehensive enhancement of the income tax brackets rather than focusing solely on the basic exemption limit.

According to Shetty, the current tax system is skewed, with just 2% of taxpayers contributing a staggering 77% of the total income tax. This imbalance highlights the need for a more inclusive and fair tax structure. By restructuring the tax brackets, the government can ensure that all income levels are treated equitably.

Shetty believes that a balanced approach is crucial for maintaining taxpayer morale and ensuring that the tax system is perceived as fair. He argues that simply raising the tax-free limit could lead to greater disparities in tax contributions, which would not be in the best interest of the economy. A holistic review of the tax brackets is necessary to create a system that is both fair and sustainable.

Introduce 30% Flat Deductions to Encourage Savings

Another significant proposal from Shetty is the introduction of a 30% flat deduction on gross income, capped at โ‚น15 lakh. He points out that the current tax regime lacks sufficient incentives for long-term savings and insurance. This absence has led to a decline in life insurance penetration and reduced interest in essential financial products.

Shetty notes that fewer salaried individuals are participating in small savings schemes, and interest in the National Pension System (NPS) remains low. These trends are concerning, especially in the context of an economic slowdown, declining household savings, and stagnant incomes. The lack of tax deductions has diminished the incentive for individuals to save and invest in their financial future.

By implementing a flat deduction, the government could encourage more people to engage in savings and insurance. This would not only help stabilize household finances but also promote a culture of financial planning. Shetty argues that a simplified deduction structure would be beneficial for taxpayers and the economy as a whole, fostering a more financially secure society.

 


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