“Budget 2025 Expectations Part 2: What to Expect and How It Could Impact Your Finances (Tax Rates Changes)”

What to Expect from Union Budget 2025

With Budget 2025 around the corner, anticipation is building as the nation looks to the Modi government and Finance Minister Nirmala Sitharaman for key policy decisions that will shape India’s financial and tax landscape for the year ahead.  

As always, there is widespread expectation that the Budget will introduce significant reforms to drive economic growth, increase disposable income, and promote responsible spending habits among citizens. Below, we highlight some key amendments related to individual taxation that we believe should be considered in this year’s Budget.

1. Focus Areas of Budget 2025

• Continued economic reforms with a focus on maintaining fiscal discipline.
• High expectations from Finance Minister Nirmala Sitharaman.
• Key areas likely to be addressed:
  • Individual taxation
  • Residential status classification
  • Capital gains tax reforms

2. Changes in Individual Taxation

a. Current Tax System & Expected Adjustments

• No tax for individuals earning up to:
  • Rs 7,50,000 under the old regime
  • Rs 7,75,000 under the new regime
• Basic exemption limit under the new regime increased from Rs 2,50,000 to Rs 3,00,000 over five years.
• Government may introduce:
  • Tweaks to tax slabs
  • Additional benefits, such as extending the interest deduction on housing loans.
• Possible relief ensuring individuals earning up to Rs 10,75,000 pay minimal or no tax.
• Boost to homebuyers and the real estate sector.

b. Simplifying Residential Status for Taxatio

• Current Classification:
  • Resident
  • Resident but Not Ordinarily Resident (RNOR)
  • Non-Resident
• Issues: Complexity and disputes over taxable income.
• Expected change:
  • Shift to a simpler two-tier system: Resident and Non-Resident.
  • Classification is based only on the number of days spent in India.
  • More clarity, reduced compliance burden, and better alignment with global standards.

3. Capital Gains Tax Reforms

• Investors shifting from traditional fixed deposits to stocks, SIPs, and mutual funds.
• Banks face challenges in attracting low-cost deposits.
• Proposed reform:
  • Classify fixed deposits as capital assets.
  • Tax profit made on maturity as capital gains instead of regular income.
• Impact:
  • Encourages fixed deposit investments.
  • Creates a balanced tax structure between traditional savings and market-linked investments.
  • Significant benefit for senior citizens avoiding stock market risks.

4. Final Takeaway

• Budget 2025 will focus on economic growth while maintaining fiscal stability.
• Expected changes:
  • Tax slab adjustments
  • Tweaks to exemptions and deductions
• Aim: Reduce financial burden on individuals, boost real estate, and encourage balanced investments.
• The budget will play a crucial role in shaping India’s economic future with a balance between growth and fiscal responsibility.

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