Union Budget 2025: Possible Tax Cuts, Higher Standard Deduction & Section 80C Reforms Expected
Union Budget 2025: Will Sitharaman Announce Major Tax Cuts for Salaried Class?
New Delhi, Jan 2025 – Finance Minister Nirmala Sitharaman is set to present the Union Budget 2025 on February 1, 2025, just six months after unveiling the full budget for the Modi 3.0 administration. As inflation rises and disposable income shrinks, taxpayers are eagerly anticipating income tax relief, potential tax rate reductions, and higher exemption limits.
The government’s focus remains on the New Tax Regime, which offers lower tax rates but eliminates many deductions available under the old system. Experts are calling for House Rent Allowance (HRA) exemptions, an increase in Section 80C tax deductions, and a higher standard deduction of Rs 1 lakh to provide relief to salaried individuals.
Standard Deduction: Possible Increase to Rs 1.2 Lakh
The New Tax Regime, introduced in Union Budget 2020, aimed to simplify taxation by lowering rates but removing key exemptions like standard deduction and home rent allowance (HRA). Currently, both tax regimes offer a Rs 50,000 standard deduction for salaried employees and pensioners.
In Budget 2024, Sitharaman increased the standard deduction under the New Tax Regime to Rs 75,000. Experts now argue for further revisions, considering inflation and rising expenses.
“Salaried taxpayers are hoping for relief in Budget 2025. Given the rising cost of living and medical expenses since FY 2018-19, aligning the standard deduction across both tax regimes would be practical. Increasing it to at least Rs 1.2 lakh per year would provide meaningful relief, as many salaried individuals spend around Rs 10,000 monthly on transport and medical costs,” said Santhosh Sivaraj, Partner, BDO India.
Historically, the standard deduction was eliminated in FY 2005-06 but reintroduced in Budget 2018 by the Late Finance Minister Arun Jaitley at Rs 40,000, replacing transport and medical allowances.
Section 80C: Expected Changes in Tax Deductions
Section 80C of the Income Tax Act, 1961, allows individuals to reduce taxable income through eligible investments. The current maximum deduction is Rs 1.5 lakh, but experts suggest increasing this limit to encourage savings and investment.
Key Features of Section 80C:
✔ Maximum deduction of Rs 1.5 lakh per year
✔ Covers investments in Life Insurance (LIC), Public Provident Fund (PPF), Employee Provident Fund (EPF), and National Savings Certificates (NSC)
✔ Available to individuals and Hindu Undivided Families (HUFs)
✔ Excludes companies, LLPs, and partnership firms
✔ Additional Rs 50,000 deduction under Section 80CCD(1B) for investments in National Pension Scheme (NPS)
Experts believe an increase in Section 80C limits to Rs 2 lakh would incentivize long-term savings.
HRA Exemption: Will Budget 2025 Include It in the New Tax Regime?
A major concern for salaried taxpayers is the absence of House Rent Allowance (HRA) exemptions in the New Tax Regime. Currently, this benefit is only available in the Old Tax Regime and calculated as the lowest of the following:
- Actual HRA received
- 50% of basic salary (40% for non-metro residents)
- Rent paid minus 10% of basic salary
Tax experts argue that extending HRA benefits to the New Tax Regime would make it more attractive for taxpayers living in rented accommodations.
Home Loan & Provident Fund Benefits Under Section 80EE & 80C
Home Loan Benefits:
✔ Section 80EE allows a deduction of Rs 50,000 on home loan interest for first-time homebuyers.
✔ Section 24(b) provides additional interest deductions of up to Rs 2 lakh per year on home loans.
Provident Fund Benefits:
✔ Employee contributions to EPF & PPF qualify for deductions under Section 80C.
✔ The maximum PPF investment limit is Rs 1.5 lakh per year, offering 7.1% interest (tax-free).
Conclusion: Budget 2025 to Offer Tax Relief?
With Budget 2025 approaching, salaried individuals and taxpayers expect bold reforms in income tax exemptions, standard deduction hikes, and relief for home loan borrowers. The New Tax Regime could become more attractive if HRA and Section 80C deductions are included.
Stay tuned for the latest Budget 2025 updates as Finance Minister Nirmala Sitharaman unveils the Union Budget on February 1, 2025.
