Tax Reforms in Budget 2025: A New Dawn for Taxpayers
As the anticipation builds for Budget 2025, individual taxpayers are hopeful for favorable reforms. The Finance Minister has introduced several changes aimed at benefiting taxpayers across various income levels. These reforms are designed to simplify the tax structure and provide relief to the middle class, marking a significant shift in the tax regime. The new measures promise to enhance compliance and boost tax revenues while ensuring that taxpayers feel valued and supported.
Key Changes in the New Tax Regime
The new tax regime introduces several notable changes that will impact individual taxpayers significantly. One of the most important adjustments is the increase in the basic exemption limit from INR 3 lakhs to INR 4 lakhs. This change allows individuals to earn more before they start paying taxes. Additionally, the highest tax slab has been raised from INR 15 lakhs to INR 24 lakhs, which is a substantial increase.
Moreover, a new tax rate of 25% has been introduced, and the income threshold for the rebate under section 87A has been increased from INR 7 lakhs to INR 12 lakhs. This rebate is available to resident taxpayers and aims to provide additional relief. Notably, special rate income, such as capital gains and lottery winnings, is excluded from this threshold, addressing previous ambiguities.
These changes mean that taxpayers in the new regime can expect significant savings. For instance, an individual earning up to INR 12 lakhs can save up to INR 80,000 annually, while someone earning INR 18 lakhs can save up to INR 110,000. This structure is designed to encourage compliance and support taxpayers in managing their finances more effectively.
Simplifying Tax Provisions
In addition to the new tax rates and slabs, the government has made efforts to simplify certain tax provisions. For instance, the rules surrounding vacant properties have been clarified. Previously, taxpayers could consider their annual income as NIL for up to two self-occupied properties. While this rule remains unchanged, the condition that required taxpayers to not reside in their properties due to business or employment has been eliminated. This change simplifies the qualification process for self-occupied properties, making it easier for taxpayers to navigate the regulations.
Furthermore, the introduction of the NPS Vatsalya Scheme in September 2024 allows parents to start a National Pension System (NPS) for their minor children. Upon reaching adulthood, the accumulated corpus will be transferred to the child’s name. The Budget has extended the deduction of INR 50,000 under section 80CCD to include contributions towards this scheme, providing additional incentives for parents to save for their children’s future. Partial withdrawals from the scheme, allowed for specific reasons, will not be taxable, further enhancing its attractiveness.
Enhancing Compliance and Reducing Burdens
The government has also taken steps to enhance compliance while reducing the burden on taxpayers. The timelines for filing updated returns have been extended by two years, allowing taxpayers to pay additional taxes of 60% and 70%, respectively. This extension aims to boost tax revenues through voluntary compliance, encouraging taxpayers to fulfill their obligations without the fear of penalties.
Moreover, the government has rationalized various TCS (Tax Collected at Source) and TDS (Tax Deducted at Source) thresholds. For example, the threshold for remittances under the Liberalized Remittance Scheme has been raised from INR 7 lakhs to INR 10 lakhs. Additionally, the threshold for interest income for senior citizens has been increased from INR 50,000 to INR 100,000. These changes are expected to positively impact cash flows for taxpayers, particularly seniors.
The Finance Minister has also announced plans to introduce a New Income Tax Bill aimed at simplifying the tax structure and reducing litigation. This bill is highly anticipated and is expected to reinforce confidence among taxpayers. Overall, the Budget 2025 reforms reflect a commitment to creating a fairer and more efficient tax system that benefits all taxpayers.
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