With the Union Budget 2025 approaching, Finance Minister Nirmala Sitharaman faces a significant challenge in addressing the growing expectations of various stakeholders, particularly taxpayers. The challenge for Finance Minister Nirmala Sitharaman is to craft a budget that strikes a balance between fiscal discipline, offering relief to taxpayers, and fostering economic growth. Meeting these expectations will require careful planning to ensure both short-term and long-term goals are addressed.
Since 2020, managing taxpayers’ expectations has become increasingly challenging for the government. When Finance Minister Sitharaman introduced the new tax regime alongside the option to continue with the old one, it added a layer of complexity. Balancing both systems while addressing diverse taxpayer concerns has made the task even more demanding as the budget approaches, with growing calls for greater relief and economic reforms.
Subhash Garg, former Finance Secretary, advocates for raising the income tax exemption limit from Rs 2.5 lakh to Rs 5 lakh, arguing that inflation has significantly eroded its value over the past decade. He proposes a progressive tax structure that introduces new slabs for higher incomes. In this he pitches for a 30% maximum tax rate should apply to those earning Rs 25 lakh or more. These changes, he believes, would reflect the current economic landscape and offer much-needed relief to taxpayers, especially in the face of rising costs. This adjustment would help balance tax burden and fairness across different income groups. He spoke exclusively to News24.
If Finance Minister Nirmala Sitharaman incorporates this change, it could have a substantial impact. By extending tax relief to a larger portion of the middle and upper-middle class, the government would effectively raise disposable incomes. This, in turn, would likely stimulate consumer spending and boost economic activity across various sectors.
Other experts suggested that introducing a 25% tax rate for income between Rs 25 lakh and Rs 30 lakh, while maintaining the 30% rate for incomes above Rs 30 lakh, could offer relief and ease the sharp progression of tax rates. This adjustment would help balance tax burden and fairness across different income groups.
Interview Highlights
Do you anticipate any changes in the tax rates or slabs?
“For many individuals, the budget is primarily viewed through the lens of taxation, with a focus on potential tax reductions or additional exemptions. In India, approximately 10 crore people file tax returns, but around 7 crore of them don’t actually pay taxes due to the government’s rebate provision. Likewise, only about 3 crore people in India actually pay income tax, and a vast majority of them (around 95%) are salaried individuals. In my opinion, there are three key areas that require prime government intervention.
First: The old tax scheme’s exemption threshold of Rs 2.5 lakh, unchanged for 10 years. In the meantime, there has been more than 100% inflation. Raising this exemption limit from Rs 2.5 lakhs to Rs 5 lakhs is a logical move the finance minister should make.
Second: The maximum tax rate of 30% should kick in from the income of Rs 25 lakhs.
Third: The finance minister should consider merging the two existing tax systems into a single, unified system. Having two tax slabs creates unnecessary complexity, leading to confusion. The old tax scheme remains attractive due to exemptions that offer significant savings, such as deductions on housing loan interest, which can be substantial, especially for large loans. Therefore, the two tax schemes should be merged, retaining beneficial exemptions, to create a unified and simplified system.”
