Republic Day: 7 Tax Reliefs in Budget 2025 for Financial Freedom

India will be marking Republic Day on 26th of January, the year 2025, just before Budget 2025- marking 75 years of Constitution adoption and Sovereignty, Democracy and Republic establishment. Finance Minister Nirmala Sitharaman will more than likely in her Budget announcement speech today look to declare significant tax breaks among other proposals towards reducing the everyday living costs of most middle-class families, which should indirectly help to scale down living standards. Here are the key tax relief expectations for Budget FY26 and a look at the differences between the new and old income tax regimes.

Sonal Badhan, Economist, Bank of Baroda said, "For the fiscal year 2025-26, the Union budget will skilfully balance fiscal consolidation, and measures for advancing growth."

Badhan added, " In order to support growth, amidst a slowing global growth scenario, the government will focus on boosting consumption (both rural and urban). For this, enhanced spending on MGNREGA, PM KISAN, and PMAY can be expected. In addition, certain tax incentives may also be announced. Driving investment growth will be another focus area for the government. We thus expect Rs 1-1.5 lakh crore incremental increase in capex for the next year over the revised estimate for FY25."

Bank of Baroda economists anticipate the following tax reliefs:

1. To support continued consumption growth and to ease the financial pressure on consumers due to high prices of late, the government may raise the limits of standard deductions.

2. The savings limit under Section 80C might be increased from Rs 1.5 lakh to Rs 2.5 lakh, and similarly a hike in the cap for additional savings by way of pension contributions might be provided.

3. Given the increasing healthcare and insurance costs, the limit under Section 80D for savings on health insurance premiums may be increased from Rs 25,000 to Rs 50,000.

4. Premiums paid for life insurance may also be exempted under Section 80D to increase coverage.

5. The tax rate for those earning less than Rs 15 lakh may be reduced to attract more taxpayers to the new tax regime.

5. Introduce tax incentives for hotels and homestays that follow the practice of sustainable tourism.

6. Custom duties on raw materials could be reduced to overcome the inverted duty structure. It can help the sectors like automobile parts, textiles, machinery components, and IT hardware.

Indian salaried individuals now have the option to pay taxes and claim benefits under either the old or new tax regime. According to the latest ClearTax data, a total of 7.28 crores of taxpayers filed ITR for the assessment year FY24-25 under the new regime. This reflects that about 72% of taxpayers filed under the new tax regime, while 28% opted for the old regime.

New Vs Old tax regimes: Differences Explained by the Income Tax Department

The Income Tax Department states that the old and new tax regimes differ in tax slabs and rates. The old regime allows for various deductions and exemptions, whereas the new regime offers lower tax rates but fewer deductions and exemptions.

New Tax Regime Vs Old TaxRegime

The department's FAQs report mentions that the option to select between the two regimes may differ for each individual. It is recommended to conduct a comparative evaluation and analysis under both regimes before making a choice based on specific needs. Taxpayers can generally estimate and compare their tax liabilities under both the new and old tax regimes using the Income and Tax Calculator available on the Income Tax Portal.

The new rules provide that an employee must inform his employer of the tax regime that he intends to opt for in a year. In case the employee does not notify the employer, it will be deemed that the employee continues to remain in the default tax regime and has not opted out of the new tax regime. Consequently, the employer will recover tax under section 115BAC.