Union Budget 2025: New Tax Bill with No Income Tax for Earnings up to ₹12 Lakh

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, introduces a new income tax bill set. This new bill aims to be simple and easy for taxpayers to understand, and it will be about half the volume of the current law. The budget also focuses on providing tax relief to the middle class, with potential changes to income tax slabs and rates, as well as other tax incentives.

Current Tax Regimes

Currently, taxpayers can choose between the old and new tax regimes. The old tax regime allows for exemptions on housing rentals and insurance, while the new tax regime offers slightly lower rates but fewer exemptions. The new tax regime was made the default option in the Union Budget 2023-24, requiring taxpayers to opt for the old regime if they prefer it. For those with income from business or profession, the new regime was set as the default from FY 2023-24.

Proposed Changes and Expectations for New Tax Bill

The new income tax bill announced in Budget 2025 is expected to usher in significant changes, including a focus on personal income tax reforms for the middle class. It is designed to be clear and direct, reducing litigation and providing tax certainty. The government is also taking forward the concept of "trust first, scrutinise later".

Other Potential Changes

Inclusion of Deductions: It is proposed to extend the tax benefits available to the National Pension Scheme (NPS) under sub-section (1B) of Section 80CCD of the Income Tax Act, 1961 to the contributions made to the NPS Vatsalya accounts, as applicable.

Boost to Insurance: The FDI Limit for Insurance Sector raised to 100% from 74%. 

Senior Citizen Benefits: The tax deduction threshold for senior citizens has been increased to ₹1 lakh from ₹50,000.

TCS Relief: The Tax Collected at Source (TCS) threshold for the Liberalised Remittance Scheme (LRS) increased to ₹10 lakh, and TCS is removed for remittances on education purposes.

Updated Tax Returns: The time limit for filing updated tax returns is extended from two years to four years.

Current Income Tax Slabs

The current income tax slabs under both the new and old tax regimes are as follows:

New Tax Regime

• ₹0 to ₹3 lakh: Nil
• ₹4 to ₹8 lakh: 5%
• ₹8 to ₹12 lakh: 10%
• ₹12 to ₹16 lakh: 15%
• ₹16 to ₹20 lakh: 20%
• Above ₹24 lakh: 30%

Old Tax Regime

• Up to ₹2.5 lakh: Nil
• ₹2.5 to ₹5 lakh: 5%
• ₹5 lakh to ₹10 lakh: 20%
• Above ₹10 lakh: 30%

Likely Focus on the New Tax Regime

The government is focused on making the new tax regime more attractive and may eventually phase out the old regime. Many changes are introduced under the new tax regime. The new tax regime has become the default regime and has been gaining popularity, with 72% of taxpayers opting for it in FY 2023-24.

Conclusion

The Union Budget 2025 is expected to usher in significant tax reforms through the introduction of a new income tax bill. The focus is on simplifying the tax system, providing relief to the middle class, and encouraging the adoption of the new tax regime. While the old tax regime may continue for a transitional period, the government seems to be pushing towards a more streamlined and simplified tax system.

Disclaimer: This content is solely for educational purposes.