How the Union Budget 2025 Could Impact Your Personal Finances

resr 5paisa Research Team

Last Updated: 30th January 2025 - 05:13 pm

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As the Union Budget 2025 approaches, anticipation is running high, particularly among middle-class families who look forward to potential financial relief amidst rising living costs. Each year, the budget sets the tone for personal finances and economic policies, and this year is no exception. While the actual announcements will only be unveiled on February 1st, here are some expected changes that could influence your personal finances.

Relief in Income Tax Rates and Slabs

Standard Deduction and Tax Slabs

In recent years, the government has gradually increased the standard deduction to ease the financial burden on salaried taxpayers. Last year, this amount was raised to ₹75,000, providing net benefits to many taxpayers. This year, further enhancements in the standard deduction are expected, which could offer broader relief to taxpayers across all income levels.

Key possibilities include:

  • Making income up to ₹10 lakh tax-free.
  • Introducing a new 25% tax slab for incomes between ₹15 lakh and ₹20 lakh.

Such measures could lower overall tax liabilities, increase disposable income, and stimulate consumer spending.


Revision of the 30% Tax Slab Threshold

The 30% tax slab, unchanged at ₹15 lakh since the introduction of the new tax regime in 2020, has not kept pace with inflation. With the Cost Inflation Index (CII) rising by over 20%, experts believe the threshold should increase to ₹18 lakh. This adjustment would alleviate the tax burden for higher-income earners, particularly those in urban areas where living costs are rapidly escalating.

Enhancing Tax Exemptions and Deductions

Expansion of Section 80C Deduction Limit
The current limit for Section 80C deductions, capped at ₹1.5 lakh, has remained static for several years. Taxpayers have long anticipated an increase in this limit, and an upward revision could encourage more savings and long-term financial planning.

Increased Health Insurance Deduction Limits

Healthcare expenses continue to rise, prompting calls for higher deductions under Section 80D for health insurance premiums. The current limits of ₹25,000 (for individuals) and ₹50,000 (for senior citizens) could be revised. Such changes would ease financial stress, particularly in medical emergencies.

Higher Deduction for Home Loan Interest

Promoting homeownership has been a consistent government goal. To this end, the deduction limit for home loan interest under Section 24(b) may increase from ₹2 lakh to ₹3 lakh. This move could boost the real estate sector and help individuals achieve their dream of owning a home.

House Rent Allowance (HRA) Exemptions

The rising cost of living in urban areas has intensified the demand for higher exemptions under House Rent Allowance (HRA) in the old tax regime. Currently, the exemption is calculated as the lowest of the actual HRA received, 50% of basic salary for metro residents (40% for non-metro), or rent paid minus 10% of basic salary. Increasing these limits could significantly ease rental expenses for salaried employees in metro cities, improving their financial flexibility.

Basic Exemption Limit Increase

Under the new tax regime, the basic exemption limit is expected to rise from ₹3 lakh to ₹5 lakh. This change would significantly benefit individual taxpayers by increasing disposable income and boosting consumption.
Encouraging Savings Under the New Tax Regime

The old tax regime encouraged savings by offering multiple deductions under various sections. However, the new tax regime, while simplifying tax calculations, provides fewer deductions, which may reduce the incentive for long-term financial planning. A key concern is the low insurance penetration in India, which could be partly due to the removal of tax benefits that previously motivated individuals to invest in essential financial protection.

There is growing speculation that the government may introduce measures to address this issue and promote savings under the new tax regime. Reports suggest that policymakers are considering expanding the list of deductions to strike a balance between simplicity and financial security. If implemented, such steps could ensure that financial planning remains a priority without complicating the tax structure.

Conclusion

The Union Budget 2025 holds the promise of reshaping personal finances through potential tax reforms, increased deductions, and revised exemptions. While these expectations offer hope for financial relief and economic growth, the specifics will only be clear once Finance Minister Nirmala Sitharaman unveils the Budget on February 1st. Until then, these speculations provide a glimpse into the possible directions the government might take to support taxpayers and the broader economy.


 

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