Budget 2025 income tax expectations: With an intent to provide taxpayers with more disposable income, one may expect an increase in the basic exemption limi. (AI image)
By Surabhi Marwah
Budget 2025 income tax expectations
: As we move closer to February 1, 2025, the nation is keen to listen to the Finance Minister’s speech unveiling the
Union Budget 2025
. In the recent years, several directional changes have been introduced in the personal tax landscape. A brief overview of the key directions emerging from the last four Union Budgets:
- Increased focus on the adoption of the Concessional Tax Regime (CTR) by making it more attractive:
- Reduction of maximum marginal rate to 39% from 42.744%
- Introduction of standard deduction
- Changes in tax slabs
- Increase in deduction from 12% to 14% of basic salary for employer’s contribution to National Pension System (‘NPS’) for private sector employees
- Overhaul of the capital gains taxation with consolidated asset classes, simplified surcharge for long term capital gains and simplified holding periods
- Significant push towards digitalization leading to quicker processing of income tax returns (average time for processing of tax return has reduced to 10 days in FY 2023-24). Enhanced transparency in availability of data to taxpayers through Annual Information Statement (AIS) and Tax Information Summary (TIS)
- Allowing offset of Tax Collected at Source (TCS) against tax deductible at source on salary income
These changes reflect the government’s efforts and intent to streamline tax regimes, incentivize savings, and enhance the digital experience for taxpayers. Keeping up with the said intent, few expectations / wishlist from the upcoming Budget is provided below:
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Income Tax: Key expectations from Budget 2025
1. Higher basic exemption limit under the CTR
With an intent to provide taxpayers with more disposable income, one may expect an increase in the basic exemption limit under CTR to INR 5,00,000 from INR 3,00,000.
This would mean that the taxpayers with a taxable income between INR 15,00,000 to INR 50,00,000 may see a tax reduction of INR 10,400 and those with a taxable income between INR 50,00,000 to INR 1,00,00,000 would see a tax saving of INR 11,440 (subject to marginal relief) due to the increased basic exemption limit.
2. Perquisite valuation for Electrical Vehicles (EVs)
Currently, the car perquisite valuation rules under the income-tax law are based on the cubic capacity of motor cars, which is not applicable to EVs as they do not have engines measured by cubic capacity. The lack of specific provision / mention of EVs in the perquisite valuation rules creates ambiguity in determining the taxable value of perquisite for EVs.
Given the increasing adoption of EVs, one may expect the government to come up with a framework that provides clarity on the perquisite valuation of EVs.
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3. Other anticipated wish list from Budget 2025:
- Clarity on taxation of Virtual Digital Assets (VDA): Introduction of clear guidelines and tax structure for cryptocurrency and Non-Fungible Tokens (‘NFT’) transactions, including rules / guidelines for treatment of losses from such VDAs
- Increase in the cap on house property loss set-off: Currently, there is a limit of INR 2,00,000 on the amount of loss from house property that can be set off against other income in the same financial year. It is expected to increase such cap / limit to allow for increased set-off in the same financial year against other heads of income
- Expand the list of cities eligible for the 50% basic salary limit for the purpose of HRA exemption (e.g., Pune, Hyderabad, Bengaluru, Gurgaon, and Ahmedabad)
- Tax deferral on ESOPs for all employees: Offer tax deferral on ESOPs until the stage of sale of shares (as against taxing it at the stage of Exercise) for all employees, extending the benefit currently available only to eligible start-ups
- Accountability for Centralised Processing Centre (CPC) Interactions: Introduction of accountability provisions for interactions with the CPC to ensure timely and effective resolution of taxpayer issues and grievances
The nation will be tuned in on February 1, 2025 for the final verdict.
(The author is Tax Partner, EY India. Uday Bhartia, Tax Professional, EY India also contributed to the article.)
