Anticipations for Income Tax in Budget 2025
As the Union Budget approaches, expectations are mounting regarding potential changes to income tax regulations. Leading consultancy firm EY has put forth several recommendations that could significantly impact taxpayers across various brackets.
Proposed Increase in Basic Exemption Limit
EY advocates for an increase in the basic exemption limit from Rs 3 lakh to Rs 5 lakh under the new tax framework. This adjustment aims to provide much-needed relief, particularly for individuals within lower income brackets. The firm emphasizes that such a move would enhance disposable income and stimulate economic activity.
Call for Reduced Tax Rates
In addition to raising the exemption threshold, EY suggests a reduction in overall income tax rates. This recommendation is particularly focused on easing the financial burden on lower-income earners while promoting fairness within the taxation system.
Clarifications Needed on Emerging Assets
The consultancy also highlights a pressing need for clear guidelines surrounding emerging digital assets such as cryptocurrencies and non-fungible tokens (NFTs). Specifically, they call for clarity regarding perquisite valuation related to electric vehicles (EVs) and how losses from virtual digital assets should be treated under current laws.
Additional Recommendations by EY
- House Property Loss Set-Off: EY proposes eliminating restrictions on offsetting house property losses against other income sources.
- HRA Exemption Expansion: Including tier-2 cities like Hyderabad, Pune, Bengaluru, and Ahmedabad at a 50% HRA exemption rate would create greater equity among urban taxpayers.
- Simplification of Employer Contributions: The process surrounding employer contributions exceeding Rs 7.5 lakhs should be simplified further. Additionally, deferring TDS on provident fund interest above Rs 2.5 lakhs until withdrawal could alleviate compliance challenges.
- ESOP Tax Deferral Extension: Extending tax deferral benefits related to Employee Stock Ownership Plans (ESOPs) across all employers would allow taxes to be paid at the point of sale rather than upfront.
Upcoming Union Budget Presentation
The government is set to unveil its Union Budget on February 1, 2025. This budget will detail proposed income tax slabs along with various incentives aimed at enhancing fiscal health during FY 2025-26.
Recent initiatives by Prime Minister Modi’s administration have sought to simplify existing Income Tax Laws significantly. In July of last year’s budget presentation, Finance Minister Nirmala Sitharaman announced plans for a comprehensive review of the Income Tax Act established in 1961—an effort that underscores their commitment towards modernization and transparency within taxation policies.
Addressing Litigation Challenges
Income tax disputes have become increasingly burdensome; as reported by EY, unresolved litigation has tied up over Rs 31 trillion during FY2023-24—accounting for approximately 9.6% of India’s GDP. The firm stresses an urgent need not only to resolve these outstanding issues but also implement measures that prevent future disputes from arising.
as we await further details from Budget 2025’s unveiling next month, it is evident that significant reforms are being called upon by experts like EY—reforms aimed at fostering economic growth while ensuring fairness within India’s taxation landscape.
