Budget 2025: Expectations of the salaried class

Salaried taxpayers hope Budget 2025 will see some major taxation reforms, including much-needed tax relief for them, higher exemptions, and a more inclusive financial framework.

As the much-anticipated Budget 2025 approaches, India’s salaried class is hoping for reforms from Modi 3.0 that could alleviate financial burdens and enhance disposable income. Representing a significant portion of the taxpayer base, the salaried workforce is looking for a more inclusive and supportive financial framework. Their expectations range from tax reforms and higher exemptions to savings incentives and reliefs in housing and healthcare costs. Here’s a detailed look at their key demands:

Focus on tax reforms and simplification

One of the foremost expectations from Budget 2025 is relief in personal income tax rates. There is a growing demand for rationalized tax slabs that are equitable and easy to navigate. Salaried individuals earning up to Rs 15 lakh annually are particularly hopeful for reductions under both the old and new tax regimes. Simplifying the tax structure by reducing the number of brackets and adjusting tax rates would make the system fairer and more transparent.

Moreover, salaried taxpayers anticipate a reduction in compliance burdens. Streamlining tax filing processes and introducing measures to reduce associated costs would be a welcome step. Many believe such reforms could foster confidence in the tax system, encouraging voluntary compliance and boosting revenue collection.

Amendments to the New Tax Regime

While the new tax regime offers a standard deduction of Rs 75,000 for all income groups, there is scope for improvement. The salaried class suggests introducing progressive standard deductions based on income levels to ensure fairness across salary brackets. Furthermore, allowing reasonable exemptions, such as for health insurance premiums, housing loans, and life insurance, could make the new regime more attractive and competitive with the old system.

Relief in housing and rent costs

Section 10(13A): The rising cost of living, particularly in urban areas, has put immense pressure on salaried individuals. There is a demand for higher exemptions under House Rent Allowance (HRA) in the old tax regime. Currently, the exemption is calculated as the lowest of the actual HRA received, 50% of basic salary for metro residents (40% for non-metro), or rent paid less 10% of basic salary. Increasing these limits could provide significant relief to those grappling with high rental expenses.

Section 24(b): Similarly, the deduction limit for interest on housing loans under Section 24(b), currently capped at Rs 2 lakh, is long overdue for an increase. A higher limit would not only ease financial pressures but also align with the government’s goal of “Housing for All,” encouraging homeownership among middle-income families.

Boost to savings and investments

Section 80C: The current limit of Rs 1.5 lakh for deductions under Section 80C has remained unchanged for years, despite inflation and rising costs. The salaried class expects this cap to be raised to at least Rs 2.5 lakh. This move could encourage greater investment in instruments such as Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), and National Savings Certificates (NSC), fostering a culture of long-term savings and financial security.

Section 80D: Healthcare expenses have surged post-COVID-19, making health insurance a necessity for most families. However, the current deduction limit of Rs 25,000 for health insurance premiums often falls short of covering the actual costs. For senior citizens, the limit of Rs 50,000, which has remained unchanged since Budget 2018, also needs revision. Increasing these thresholds would ease the financial strain on families while promoting awareness about health insurance.

Section 80EEB: With sustainability being a global focus, the salaried class is advocating for the reinstatement of deductions for interest paid on loans for electric vehicles under Section 80EEB. This incentive, capped at Rs 1.5 lakh, was previously available until March 2023. Bringing it back could encourage the adoption of eco-friendly vehicles and support the government’s green initiatives.

Provident fund interest relaxation

Provident Fund contributions are an essential part of retirement planning for salaried individuals. However, the taxability of interest earned on employee contributions exceeding Rs 2.5 lakh annually has been a point of contention since its introduction in 2021. Revising this threshold upwards would encourage greater contributions to provident fund schemes, ensuring financial security post-retirement.

Work-from-home incentives

The COVID-19 pandemic has reshaped the workplace, with remote and hybrid work models becoming the norm. Recognising this shift, the salaried class hopes for Budget 2025 to include deductions for work-from-home expenses. Costs related to internet, electricity, and co-working space rentals could be partially exempted, acknowledging the evolving professional landscape, and reducing the financial burden on remote workers.

Simplification of capital gains tax

Changes introduced in Budget 2024 to the taxation of capital gains have added complexity to tax planning for salaried individuals. For instance, the introduction of dual tax rates for long-term capital gains on immovable property — 12.5% without indexation and 20% with indexation — has made decision-making more challenging. Similarly, the increase in the short-term capital gains tax rate from 15% to 20% has escalated the tax burden on profits from short-term investments. Simplifying these provisions and offering clarity in capital gains taxation are key expectations from Budget 2025.

As Budget 2025 draws near, the salaried class remains optimistic that their concerns will be addressed. From tax reforms and enhanced exemptions to work-from-home incentives and savings promotion, their demands reflect the aspirations of India’s hardworking professionals. All eyes now turn to the finance minister as the nation waits for announcements that could shape the fiscal future of millions and pave the way for a more secure and prosperous future for India’s salaried workforce.

This article first appeared in The Financial Express on 30 January 2025.