By Anand Dhelia
As a common man of India, I would like to compliment and thank Hon’ble Finance Minister (FM) for being considerate towards the middle class and salaried taxpayers who generally feel neglected. The projected fiscal deficit of 4.4% for the next year (as against revised fiscal deficit of 4.8% for the current year) reflects a well thought through approach. The 2025 budget presented by the FM strikes a perfect balance between maintaining fiscal responsibility and managing taxpayers’ expectations.
To begin with, the FM is keen to sunset the Old Personal Tax Regime (OPTR) as all the tax benefits are now proposed under New Personal Tax Regime (NPTR). With the proposed changes, NPTR will now become far more appealing for individuals as it would mean availing beneficial tax rates and no tax declaration or providing/ maintaining tax deduction and exemption proofs. Just to share perspective, last year only 28% of taxpayers opted for OPTR which will substantially decline in coming years as OPTR will only be beneficial if you are in the 30% tax bracket with over INR 8 lakh of eligible deductions and exemptions.
Even the slab rates are easy to remember, slab changes with every block of 4 lakh and corresponding tax rates changes 5% up to six blocks with highest slab being 30 percent. Salaried individuals with a gross salary of up to INR 12.75 lakh will have zero tax under NPTR. To illustrate further, an individual earning income of, say, INR 24 lakh per annum, who had previously opted for NPTR will now enjoy a tax saving of INR 114,400 and much more compared to OPTR.
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The FM has taken conscious effort to bring down administrative burden and tried to rationalize on various aspects like penalty will be in abeyance till the final order is passed by the tax department. Now taxpayers have an opportunity to file an Updated Income Tax Return (UITR) with applicable penalty slabs based on the period of delay, up to four years in case they have missed reporting any income. By extending the option of filing UITR, Government is further encouraging such suo-moto filings, thereby enhancing its revenue streams, and providing an opportunity for taxpayers to be compliant.
Further, the FM has proposed increasing TDS threshold on interest paid to senior citizens from INR 50,000 to INR 100,000, benefiting those who rely on traditional savings like term deposits and post office schemes by allowing them to retain more interest income. Additionally, TDS on dividends will now apply only if the amount exceeds INR 10,000, resulting in higher disposable income for active investors and more opportunities for reinvestment.
In 2020, the Government introduced foreign remittance tracking mechanism by levying Tax Collection at Source (TCS) under the Liberalised Remittance Scheme (LRS). While foreign remittances up to USD 250,000 per annum is permitted under the LRS, currently, TCS is applied on remittances above INR 7 lakh. With the proposed increase in threshold from INR 7 lakh to INR 10 lakh, Government aims to alleviate the financial burden on individuals remitting funds for various purposes.
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For families who are supporting their children to pursue higher education overseas by borrowing from banks, the current TCS requirement of 0.5% on remittances exceeding INR 7 lakh adds to their financial strain. With interest rates on education loans usually exceeding 8% per annum, additional TCS meant lesser funds. With the budget proposing to scrap TCS on education-related remittances funded through financial institutions, the Government is promoting access to global educational opportunities, aligning with the vision of “Viksit Bharat” and contributing to a more skilled workforce.
By introducing the National Pension Scheme (NPS) Vatsalya last year, the Government provided an initiative for parents or guardians to open NPS accounts for their minor children. The FM expanded tax benefits for NPS to include contributions of up to INR 50,000 in NPS Vatsalya under OPTR.
Regarding Income from house property, the proposal allows taxpayers to claim up to two properties as self-occupied without any conditions. This change offers relief to those with a second property that may remain vacant for various reasons. This is again testimony to avoid ambiguity and litigation.
While no change in the tax rates on crypto transactions, it is proposed to be included in the definition of Virtual Digital Assets and prescribed reporting entities will furnish information in a specified statement.
Further, the ambiguity about taxing the redemption of unit-linked insurance with high premiums policies has now been clarified i.e., long term capital gains at 12.5%.
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For millions of middle-class taxpayers, this budget represents more than just a change in policy; it serves as a financial lifeline. This shift in focus towards the middle class is particularly significant in a time when rising costs and inflation have put pressure on their finances. As they navigate the challenges of daily life, the tangible benefits of this fiscal relief will enable them to participate more actively in the economy, ultimately contributing to a cycle of growth and stability.
To conclude – As one said, “Income tax is the hardest thing in the world to understand”, the FM has taken the challenge seriously and is moving in the right direction to simplify the same. The budget has provided a preview of a simplified tax system in the country, serving as a teaser for the New Income Tax Bill set to be unveiled next week. If today’s budget is any indication, we can anticipate a more tax-friendly and simplified compliance-oriented tax framework soon.
(Anand Dhelia is Partner at Vialto Partners. Vikas Narang, Director at Vialto Partners and Harini Vishwanath, Manager at Vialto Partners have contributed to the article. Views are personal.)