Ahead of Budget 2025, reports are emerging that the government is planning to increase the tax-free income limit to ₹10-15 lakh under the new tax regime. Currently, the basic exemption limit under the new tax regime is ₹3 lakh. Salaried employees will get a standard deduction of ₹75,000, and along with the rebate under Section 87A, their income up to ₹7.75 lakh will be tax-free.
Reuters reported that the government is considering providing tax exemption to individuals earning up to ₹15 lakh per year. Several industry bodies have also suggested the government to reduce the tax burden on taxpayers. Even the Bharatiya Mazdoor Sangh, a trade union affiliated with the Rashtriya Swayamsevak Sangh (RSS), has urged the government to increase the income tax limit to ₹10 lakh.
Can the tax-free income limit be increased?
While it may seem impossible to make income up to Rs 15 lakh tax-free, many tax experts believe that the government could make income up to Rs 10 lakh tax-free under the new tax regime in the 2025 Budget. Experts believe that the government may slightly revise the tax slabs and increase the tax exemptions or standard deduction under Section 87A to ensure that income up to Rs 10 lakh is effectively tax-free under the new tax regime.
“While the slab limit may not be increased from ₹3 lakh to ₹10 lakh or ₹15 lakh as some reports suggest, there may be a further increase in the standard deduction limits and rebates along with the increase in the slab limit, thus increasing the effective tax-free income to ₹10 lakh,” says SR Patnaik, partner and head of tax at law firm Cyril Amarchand Mangaldas.
The government could increase the tax exemption in the 2025 Budget, said CA Dr. Suresh Surana says. However, raising the tax-free income limit to ₹10 lakh will be subject to certain conditions. “It will depend on several factors, including income considerations, financial priorities and economic conditions. The increase in rebate will provide a big relief to taxpayers, but it may also affect government revenue,” he says.
Will revenue concerns hamper tax relief?
Experts say that raising the tax-free income limit to ₹10 lakh will not have a major revenue impact on the government. However, the move may affect the government’s stated objective of broadening the tax base.
“Raising the tax-free income limit to ₹10 lakh or ₹15 lakh will have a relatively modest impact on the government’s overall revenue collection, as a significant portion of the taxable population falls below this threshold,” says Ankit Jain, partner at chartered accountancy firm Ved Jain and Associates.
In November 2024, news agency PTI reported that about 76% of the income tax collected from taxpayers comes from individuals with an annual income of Rs 50 lakh or more. Since the 2013-14 financial year, the number of individuals with an annual income of more than Rs 50 lakh has increased five-fold to 9.39 lakh in 2023-24. During the same period, the tax liability of those with an income of more than Rs 50 lakh has increased 3.2-fold, from Rs 2.52 lakh crore in 2014 to Rs 9.62 lakh crore in 2024.
“A higher exemption limit may lead to a reduction in the number of taxpayers filing returns, which will be a challenge to the government’s objective of broadening the tax base. Encouraging the tax system and broadening the tax base are crucial for sustainable revenue growth, and this should be accompanied by possible economic gains,” he added.
How will raising the tax-free income limit help?
Experts believe that increasing the tax-free income threshold will significantly boost the Indian economy by enabling higher incomes for the middle class.
“With more money in hand, individuals will be able to allocate money for consumption, savings and investments. This will help increase the consumption of goods and services and boost economic activity,” says Jain.
“Furthermore, as individuals invest or save their surplus income in financial products, this change could lead to more funds being diverted through formal banking channels. This will further strengthen the banking system and contribute to the availability of capital for infrastructure and development projects,” he added.
Increasing the income tax exemption limit will make the new tax regime more attractive, says Patnaik. “This will not only provide much-needed tax relief to taxpayers, but will also help the government’s objective of making the new tax regime more attractive and encouraging taxpayers to migrate from the old regime.
Raising the tax exemption limit to ₹10 lakh will greatly benefit middle-class taxpayers and provide them with more income, Dr. Surana added. “Such a move will be in line with the government’s objective of boosting economic growth by increasing consumer spending,” he added.
