Ahead of Budget 2025, reports have emerged that the government is planning to increase the tax-free income limit to ₹10-15 lakh under the new tax regime. At present, the basic exemption limit in the new tax regime is ₹3 lakh. Salaried employees will get a standard deduction of ₹75,000, and with the rebate under Section 87A, their income up to ₹7.75 lakh will be tax-free.

The government is considering giving tax relief to individuals earning up to Rs 15 lakh per annum. Several industry bodies have also suggested the government to reduce the tax burden on taxpayers. Even the Bharatiya Mazdoor Sangh, a trade union affiliated to the Rashtriya Swayamsevak Sangh (RSS), had asked the government to increase the income tax limit to Rs 10 lakh.

Is it possible to increase tax-free income?

While it may seem impossible to make income up to Rs 15 lakh tax-free, many tax experts believe that the government can make income up to Rs 10 lakh tax-free under the new tax regime in Budget 2025. To ensure that income up to Rs 10 lakh is effectively tax-free in the new tax regime, the government may slightly revise the tax slabs and increase the tax exemptions or standard deduction under Section 87A.

"While the slab limit may not be increased from ₹3 lakh to ₹10 lakh or ₹15 lakh as some reports suggest, there could be a further increase in the standard deduction limits and rebates along with raising the slab limit so that the effective tax-free income goes up to ₹10 lakh," says SR Patnaik, partner and head of tax at law firm Cyril Amarchand Mangaldas

The government could increase tax rebates in Budget 2025. Suresh said. However, raising the tax-free income limit to ₹10 lakh will be subject to certain conditions. "This will depend on a number of factors, including revenue considerations, economic priorities and economic conditions. The increase in rebate will be a big relief to taxpayers, but it may also impact government revenues, "he says.

Are income taxes a hindrance?

Experts say raising the tax-free income limit to ₹10 lakh will not have major revenue implications for the government. However, the move may affect the government's stated objective of expanding the tax base.

"Raising the tax-free limit to ₹10 lakh or ₹15 lakh will have a relatively modest impact on the government's overall revenue collection as a significant chunk of the tax-paying population falls below this threshold," says Ankit Jain, partner, Ved Jain and Associates, a chartered accountancy firm.

In November 2024, news agency PTI reported that nearly 76% of the income tax collected from taxpayers is from individuals with an income of Rs 50 lakh or more. From the financial year 2013-14, the number of individuals with an annual income of more than Rs 50 lakh has increased five times to 9.39 lakh in 2023-24. During the same period, the tax liability of those earning more than Rs 50 lakh increased 3.2 times, from Rs 2.52 lakh crore in 2014 to Rs 9.62 lakh crore in 2024.

"The 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 expanding the tax base. Boosting the tax system and broadening the tax base is critical for sustainable revenue growth and should align with the economic gains that are possible, "he added.

How can raising the tax-free income limit help?

Experts believe that increasing the tax-free income limit will significantly boost the Indian economy by enabling higher incomes for the middle class.

"With more money in hand, individuals can set aside money for consumption, savings and investment. This will help increase the use of goods and services and boost economic activity, "Jain said.

"Also, as individuals invest or save their surplus income in financial products, this shift may 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.

Patnaik said the increase in the income tax-free limit will make the new tax regime more attractive. "This will not only provide the much-needed tax relief to the taxpayers but will also be helpful in the government's objective of making the new tax regime more attractive and encouraging taxpayers to shift from the old regime.

The increase in the tax-free income limit to ₹10 lakh will be of great benefit to the middle-class taxpayers and will provide them with more income. "Sooraj added. "Such a move will align with the government's objective of boosting economic growth by boosting consumer spending," he added.