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Finance Minister Nirmala Sitharaman is set to present the Union Budget 2025-26 in the Lok Sabha on February 1, with expectations of significant tax reforms aimed at easing the burden on salaried taxpayers. The budget is anticipated to include measures such as income tax reductions and exemptions, particularly for middle-class earners, amid rising living costs.
Proposal for Higher Tax Exemption Limits In Budget
Former BJP MP and financial market expert Jayant Sinha has called for raising the income tax exemption limit for individuals earning up to ₹10 lakh annually. Speaking on the pre-budget program Jayant Sinha ki Class on Aaj Tak, Sinha remarked:
“Tax benefits should be extended to those with an annual income of up to ₹10 lakh. My suggestion is to raise the tax exemption limit to ₹10 lakh, as per our definition of the middle class, which earns up to ₹10 lakh per annum.”
Current Tax System Under Scrutiny Ahead Of Budget 2025
The existing tax regime, which sets the basic exemption limit at ₹3 lakh under the new tax structure, has been criticized for not reflecting the financial realities of increasing household expenses. Experts argue that raising the exemption threshold could significantly benefit small taxpayers by reducing compliance requirements and filing burdens.
In addition to higher exemption limits, proposals have been made to introduce enhanced deductions for essential expenditures such as health and life insurance premiums, as well as interest on home loans, to make the tax regime more attractive.
SBI’s Recommendations for Tax Reforms ahead of Budget
A research report by the State Bank of India (SBI) ahead of the budget outlines a series of tax reform measures to boost economic growth and compliance. Key recommendations from the report, titled Prelude to Union Budget 2025-26, include:
- Flat 15% Tax Rate: Lowering the tax rate from 20% to 15% for individuals earning ₹10–15 lakh annually.
- Enhanced Deductions: Raising the National Pension Scheme (NPS) contribution limit from ₹50,000 to ₹1 lakh and increasing the medical insurance exemption from ₹25,000 to ₹50,000.
- Streamlined FD Taxation: Applying a uniform 15% tax on interest earned from Fixed Deposits (FDs) across all maturity periods, instead of the current tiered system.
Simplifying Fixed Deposit Taxation
Under the current system, FD interest is taxed at individual slab rates ranging from 5% to 30%. SBI’s proposal suggests introducing a flat 15% tax rate on FD interest, to be applied upon withdrawal rather than annually. This would align FD taxation with financial instruments like equities and mutual funds, which are taxed only upon redemption. However, such a change is estimated to result in a revenue loss of approximately ₹10,408 crore for the government.
With the budget session beginning on January 31 and concluding on April 4, experts and citizens alike are eager to see how the government addresses the economic challenges facing the middle class. The proposed reforms aim to boost disposable incomes, enhance consumption, and streamline tax policies, creating a more inclusive and sustainable fiscal environment.
