Budget 2025: Income Up to Rs 10 Lakh to Be Tax-Free, New 25% Tax Slab Expected, Report Says

In a move to ease the tax burden, the upcoming Union Budget 2025-2026 is expected to bring major revisions to the new tax regime. According to a report by Business Standard, citing government sources, it may include making annual income up to Rs 10 lakh tax-free and introducing a new 25% tax slab for income between Rs 15 lakh and Rs 20 lakh.

Union Finance Minister Nirmala Sitharaman is set to announce Union Budget 2025-2026 on February 1. Salaried taxpayers eagerly await rebates and tax reductions under both the tax regimes from the annual budget.

Government Considering Tax Relief

Currently, under the new tax regime, salaried taxpayers earning up to Rs 7.75 lakh per annum effectively have no tax liability, with Rs 75,000 standard deduction in place. Income over Rs 15 lakh per annum falls under the highest tax slab of 30%. The Business Standard report suggested that government is evaluating the changes.

“We are evaluating both options. If our budget allows, we may implement both measures – making income up to Rs 10 lakh tax-free and introducing a 25 percent slab for income between Rs 15 lakh and Rs 20 lakh,” a government source told the publication. He further said that the government is prepared to absorb the revenue loss of Rs 50,000 crore to Rs 1 lakh crore as an impact of such income tax relief.

Ahead of the Union Budget 2025-26, the Global Trade Research Initiative (GTRI) has proposed significant tax reforms. The think tank recommends raising the income tax exemption limit to Rs 5.7 lakh, adjusted for inflation. Additionally, GTRI suggests increasing fixed deductions and exemptions, such as raising the Rs 10,000 savings interest deduction to Rs 19,450 by 2025, and adjusting the Rs 1.5 lakh deduction for insurance premiums and PF contributions to Rs 2.6 lakh. The think tank also highlighted the importance of inflation-indexed tax slabs and exemptions to maintain the real value of taxpayer benefits.

Most market experts believe that unlike last year, Finance Minister Nirmala Sitharaman will not surprise with a hike in capital gains tax. They also expect that, while the government may implement some tax measures to encourage consumption amid slowed growth, the budget’s impact will be limited in terms of significantly boosting growth or earnings.