Farewell Old Tax Regime? Why This Budget Could Redefine Taxes Forever
With Union Budget 2025 just a few days away, the chatter in offices, businesses & social media feeds is buzzing with speculation on what the Finance Minister has in store for taxpayers. If the rumors turn out to be true, this year’s budget could be a blockbuster—especially on the direct tax front. From whispers of a basic exemption limit being raised to a whopping ₹15 lakh to murmurs of the old tax regime being retired for good, there’s no dearth of expectations.
With the record of longest marathon budget speech in the past, FM Smt. Nirmala Sitharaman is poised to etch her name in history as possibly the longest-serving FM to present a Union Budget. She would equate this record with Morarji Desai, who presented 8th consecutive budgets as FM. Let’s unpack the probable announcements in this year’s budget.
1. The ₹15 Lakh Dream: Is it Real or a Mirage?
Imagine a scenario where your taxable income up to ₹15 lakh is entirely exempt from tax. Sounds too good to be true? Yet, this is precisely the number being floated around as the potential new basic exemption limit.
If this materializes, it would be a game-changer for India’s burgeoning middle class. A larger exemption limit means more money in the hands of the people, which, in theory, translates to higher spending. Economists call this the “multiplier effect”. If ₹15 lakh becomes tax-free, we might finally see relatives at family gatherings discussing something other than their latest blood sugar readings or cricket scores! While such a move would undoubtedly win the government brownie points, it also raises questions. How will the exchequer make up for the revenue shortfall? Could there be compensatory hikes elsewhere, like GST or indirect taxes? That ₹15 lakh exemption may look shiny, but let’s hope it’s not wrapped in hidden strings.
2. Farewell, Old Tax Regime?
With statistics of taxpayers in the Old Tax Regime (OTR) Vs. New Tax Regime (NTR), the OTR may finally be laid to rest. For those who’ve lost track in the labyrinth of India’s tax system, here’s a refresher: the old regime allows deductions for investments and expenses (think Section 80C, 80D, 80G, Home loan interest), while the new regime offers lower tax rates but with no deductions. Over the past two years, the Finance Minister has quietly nudged taxpayers towards the NTR with visible and tempting incentives. Taxpayers were nudged, incentives were dangled, and yet, many clung to the old system, possibly because we Indians love our exemptions as much as we love our chai and cricket. 2025 might be the year the Finance Minister says, “Enough’s enough!” On the bright side, the NTR, if made mandatory, might come with more attractive slabs and rates.
3. Shrinking the Income Tax Act: Simplifying Taxes or Just Reducing Paper?:
If you’ve ever had to read through sections, subsections, clauses, proviso, and footnotes that rival a legal thriller in complexity, this announcement might make you cheer.
The intent to comprehensively review the six-decade-old Income Tax Act Tax Act was already announced in the last budget. The new Direct Tax Code has been in discussion since 2009. It is likely that the Government may table a new Income Tax bill in this Budget session. The size of the Income Tax Act may shrink by 60%. Is it feasible? Yes, with following, it looks feasible:
a) Elimination of Chapter VI-A Deductions
b) Streamlining Charitable Trust Provisions
c) Removal of lot many exempt Income u/s 10
d) Scrapping of Clubbing Provisions
e) Curtailing the bucket of Special Tax Rate Income
f) Phasing Out of various Obsolete Provisions
g) Consolidation and synchronization of TDS & TCS provision.
This initiative ties in with the Government’s broader push for ease of doing business and taxpayer compliance. A concise tax law, in theory, should lead to fewer disputes and faster resolutions. But let’s not pop the bubbly just yet. Simplification doesn’t just mean fewer pages & the devil, as they say, is in the details.
4. Swipe Right on Digital: The Push for a Cashless Future:
Already there are plenty of conditions & restrictions on cash transactions. Few are applicable to business houses and few all are applicable to all the citizens. As digital platforms gain prominence, the government may roll out more measures to encourage cashless transactions. Focus might shift on the recipient who may be mandatorily required to accept the payment in digital mode only. The mass acceptability of UPI at grass root level may make the implementation easy without much resistance.
5. Going Green, Saving Green: Tax Breaks on the card:
With climate change becoming an urgent priority & India’s focus on going green, the Government might introduce tax incentives for adopting renewable energy solutions or buying electric vehicles. Imagine getting a tax break for going green—saving the planet and your wallet in one go.
6. Encouraging Startups:
Government is banking high on Innovation & Research for moving to a 5 Trillion Economy. India’s Startups have long been the poster children of India’s growth story, but many founders complain about the maze of compliance requirements. The budget may introduce measures to ease tax burdens for startups, perhaps by providing tax holidays or rationalizing capital gains tax.
7. Healthcare Relief: More than Just a Band-Aid?
Post-pandemic, healthcare expenses have skyrocketed. Few tax incentives like continuing deduction limits for medical insurance premiums or out-of-pocket medical expenses under the new regime could provide much-needed relief to households.
8. Big Brother is Watching:Widening the scope of SFT & TDS:
Income tax department is flooded with data & information from multiple sources & agencies by way of Statement of Financial Transactions (SFT) by the reporting entities & TDS returns by the deductor. It is also used as a base for generating pre-filled income tax returns. The scope of SFT/TDS is widening with each passing year. In the forthcoming budget, there are chances that SFT / TDS may be widened by extending it to various credit co-operative societies & others doing high volume financial transactions.
Conclusion:
As the countdown to Budget 2025 begins, expectations are sky-high. FM Sitharaman has a tough balancing act ahead. On one hand, she must cater to taxpayers clamoring for relief, and on the other, she needs to ensure that the government’s coffers remain healthy to fund infrastructure, defense, and welfare schemes. Budget Day is like a cricket World Cup final—emotions run high, predictions fly, and everyone suddenly becomes a finance expert. As the Finance Minister takes the crease, let’s hope this innings is a match-winner for everyone!
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & responses to queries are available at www.theTAXtalk.com].