Rs 10 Lakh Tax-Free Income Possible in Union Budget 2025: Says Report

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The Union Budget 2025-2026, to be presented by Finance Minister Nirmala Sitharaman on February 1, carries significant expectations from taxpayers and industry stakeholders alike. According to reports, the upcoming budget may introduce major changes to the income tax structure under the new tax regime, providing relief to salaried individuals and boosting consumer spending. Proposed reforms include making annual income up to ₹10 lakh tax-free and introducing a new 25% tax slab for income between ₹15 lakh and ₹20 lakh.

Rs 10 Lakh Tax-Free Income Possible in Union Budget 2025

Possible Changes in Income Tax Slabs

The government is reportedly evaluating two major reforms under the new tax regime, which is currently the default system:

  1. Tax-Free Income up to ₹10 Lakh:
    • This would significantly increase the current threshold, where income up to ₹7.75 lakh incurs no tax after the ₹75,000 standard deduction.
  2. New 25% Tax Slab for ₹15 Lakh to ₹20 Lakh:
    • Presently, income above ₹15 lakh is taxed at 30%, the highest rate under the new tax regime. A new 25% slab would provide substantial relief to middle-income earners.

If both measures are implemented, the government is prepared to absorb a revenue loss of ₹50,000 crore to ₹1 lakh crore, according to government sources cited by Business Standard.

Overview of Current Tax Structure (New Tax Regime)

Annual Income (₹)Tax Rate
0 – 3 lakh0%
3 lakh – 6 lakh5%
6 lakh – 9 lakh10%
9 lakh – 12 lakh15%
12 lakh – 15 lakh20%
Above 15 lakh30%

With proposed changes, income up to ₹10 lakh would be fully exempt, while introducing a 25% slab for higher income brackets would ease the tax burden on mid-level salaried individuals.

Public Expectations from Budget 2025-26

1. Higher Exemption Limits and Inflation-Adjusted Deductions

The Global Trade Research Initiative (GTRI) has recommended revising tax exemption limits to match inflation. Key proposals include:

  • Raising the basic exemption limit to ₹5.7 lakh.
  • Increasing the ₹10,000 savings interest deduction to ₹19,450.
  • Adjusting the ₹1.5 lakh 80C limit to ₹2.6 lakh for investments in life insurance, PPF, and EPF.

These measures would help taxpayers preserve real income while encouraging long-term savings.

2. Relief for Homeowners

A Grant Thornton Bharat survey revealed that 53% of respondents advocate for allowing set-off of house property losses under the new tax regime. Many also support removing or increasing the ₹2 lakh limit on home loan interest deductions under the old regime to boost real estate investment.

Survey Insights: What Taxpayers Want From Budget 2025

According to Grant Thornton Bharat’s pre-budget survey of over 500 respondents:

  • 57% of individual taxpayers want lower income tax rates.
  • 46% support reducing tax rates to enhance the new tax regime’s appeal.
  • 26% believe exemption limits should be increased.

Additionally, 72% of taxpayers have opted for the new tax regime, yet 63% still favor increased incentives under the old system for its deductions and exemptions.

Expert’s Commentary

Akhil Chandna, Partner at Grant Thornton Bharat, emphasizes the need for reforms that support retirement savings and a green economy:

CA Pradeep Banka, Founder of Banka & Banka, highlights the diminishing appeal of tax-saving instruments:

Taxpayer Wishlist for Budget 2025-26

Area of ReformProposed Change
Income Tax SlabsIncrease tax-free income limit to ₹10 lakh. Introduce a 25% tax slab for income between ₹15-20 lakh.
80C Deduction for InvestmentsRaise the limit from ₹1.5 lakh to ₹2.6 lakh.
Savings Interest Deduction (Section 80TTA)Increase the ₹10,000 limit to ₹19,450.
House Property Loss Set-OffAllow set-off of house property losses under the new regime; raise or remove the ₹2 lakh limit in the old regime.
NPS Tax DeductionIncrease deduction limits and introduce flexible withdrawal rules.
Electric Vehicle Tax BenefitsClarify perquisite taxation and restore purchase deductions for EVs.

Impact on Middle-Class Taxpayers

Tax reforms targeting disposable income and investment incentives would directly benefit the middle class, defined as individuals earning between ₹5 lakh and ₹25 lakh annually.

Under the old regime, taxpayers can claim deductions on:

  • Section 80C for investments (PPF, NSC, ELSS)
  • Section 24(b) for home loan interest
  • Section 80D for health insurance premiums

However, the new tax regime offers lower rates but no exemptions, reducing motivation for savings. Many taxpayers feel that reforms must balance lower tax rates with incentives for long-term investments.

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