As the country moves towards February 1, when Finance Minister Nirmala Sitharaman is expected to submit the Union Budget 2025-26, all eyes are set on her, and people are asking whether she would give some reprieve to the salaried class by slashing the Income Tax rates.
The Income Tax is the easiest and one of the most lucrative sources of revenue for any government.
Also, as the salaried middle class has no organisation to lobby for them, they remain ignored and end up paying Income Tax at the whims of the Finance Minister or to cushion the Ministry of Finance’s expenditure.
It has happened over the years with no exception.
How Much Income Tax Do You Pay?
The present slab of Income Tax begins with 5% for income of Rs 2.5 lakh to 3 lakh per annum in the old tax regime and complete exemption in the new tax regime.
The highest Income Tax slab of 30% is for people earning more than Rs 10 lakh per annum in the old tax regime, while in the new tax regime, it is 15% for income between Rs 10 lakh and Rs 12 lakh, 20% for those earning Rs 12 lakh to Rs 15 lakh and 30% for income above.
Experts believe, most of the income taxpayers come under the category of Rs 5 lakh to Rs lakh and end up paying 20% in the old regime and 5% in the new regime.
Will Nirmala Aunty, as she is called affectionately, slash the tax rates?
Why Should Finance Minister Slash Income Tax Rates?
In a pre-budget meeting with Prime Minister Narendra Modi, a group of business tycoons suggested he cut down the Income Tax rates so that the salaried class is left with increased disposable income, savings may go up and it could help revive demand in sectors hit hard by subdued consumption.
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They advised the Union government to give some relief to those earning up to Rs 20 lakh annually, arguing that increased disposable income may lead to buoyancy in revenues and may further push the Indian economy forward.
Will Niramla Sitharaman Increase Standard Deduction?
In the Union Budget 2024-25, the standard deduction in the new regime was raised from Rs 50,000 to Rs 75,000.
The standard deduction is the amount that is deducted from a person’s annual income and the tax is calculated on the remaining amount.
It was done away in 2005, when the amount was Rs 30,000 or 40% of the income. The standard deduction was re-introduced in 2018 at Rs 40,000. It was increased to Rs 50,000 in 2019. It is Rs 75,000 at present.
Will Nirmala Sitharaman bring it further down? Because the Finance Minister took five years to increase the standard deduction from Rs 50,000 to Rs 75,000, she should not be expected to rise the same in the consecutive year.
Secondly, people may ask how much should be deducted from your income before calculating the tax?
Earlier Tax Sops
The Finance Minister allowed a further tax deduction on employer contribution up to 14% for state government employees in 2023.
Besides, Nirmala Sitharaman also increased the tax deduction limit in the National Pension System has been raised from 10% to 14% for state government employees.
Massive Revenue Collected
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Experts believe, the FinMin may not resist the temptation of garnering massive amount of revenue that comes as the Income Tax.
In the Year 2024-25, the revenue collected so far has reached to Rs 6,61,858 lakh crore.
It was Rs 12.01 lakh crore during FY 2023-24.
The Gross Direct Tax Collections of Rs. 19,72,248 crore was registered in FY 2022-23.
An amount of Rs 14.12 lakh crore was collected as Gross Direct Tax in FY 2021-22.
Fiscal Deficit To Be Tamed
Financial experts believe, the Finance Minister’s hands are tied and it would be really difficult for her to cut the Income Tax rates.
The Union governemnt has decided to limit the fiscal deficit for FY 2025-26 at 4.5% of the GDP.
Experts believe, Nirmala Sitharman has chosen an uphill road to trudge with reduced consumption, sluggish GDP growth rate and increased inflation rate.
The GDP Growth rate fell down in the second quarter of the Financial Year 2024-25 to 5.4%.
The situation came to such a pass that the RBI was forced to slash the GDP expectation from 7.2% to 6.6%.
Niramala On Uphil Task
Similarly, the GDP forecast for the third quarter of the financial year too was reduced from 7.4% to 6.8% and from 7.3% to 6.9% for the fourth quarter of FY 2024-2025.
On the other hand, while consumption slowed down, the input costs and customs duty went up, pushing FMCG companies like Hindustan Unilever, Godrej Consumption, Marico, Nestle, Parle Products, and Tata Consumptions to roll out a hike in prices. Consequently, from tea and soap to edible oils and skin care, the prices went up by 5% to 20% in last year, further hitting the consumption hard.
Under these conditions, the Finance Minister has not been left with the cushion or the cover to show magnanimity.
She needs money, she has to slash down the fiscal deficit. She will not show any kindness to the salaried people, who have to way to escape. They will have to bear the brunt.
Besides, General Election and polls to four assemblies have already taken place, and even the Delhi Assembly Elections 2025 will be held just four days after the budget and the BJP has no high stakes there. This is the best time to take the harsh decisions. Why should Nirmala Sitharaman show excess sympathy to those who are easy to milch?
