As is the case every year, the expectations from Budget 2025 are very high. Taxpayers are facing an inflation rate that is going northwards and a stock market index that is going in the opposite direction.

In the previous Budget, the Finance Minister reaffirmed that the government would continue efforts to simplify taxes, improve taxpayer services, provide tax certainty and reduce litigation while enhancing revenues for funding the development and welfare schemes of the government.

It has been the endeavour of the government to simplify taxation without exemptions and deductions for corporate tax and personal income tax.

Data seem to suggest that taxpayers have bought into this strategy — in the financial year 2022-23, 58 per cent of corporate tax came from the simplified tax regime and about 66 per cent of taxpayers have availed the new personal income tax regime.

The Finance Minister announced a project to undertake a comprehensive review of the Income Tax Act; this is still a work-in-progress and would take time to be completed considering the enormity of the task. An announcement on the possible deadlines can be expected to be a part of the Finance Ministers’ speech.

Tax rates

There are two very popular expectations from Budget 2025. There is a widespread expectation to increase the threshold exemption for income tax for individuals from ₹3 lakh to ₹5 lakh.

At present, taxpayers in this range of taxable income pay a tax of 5 per cent. It is felt that the revenue from this category of taxpayers is not significant and can be made up through other measures.

Additionally, the existing 100 per cent tax rebate for individuals with a total income of up to ₹7.5 lakh should be extended to those earning up to ₹10 lakh. This adjustment would provide greater relief for taxpayers opting for the new regime.

One of the most popular deductions that have stood the test of time is the deduction under Section 24 for interest on housing loans. Deduction can be claimed under this Section to a maximum of ₹2 lakh. This limit was fixed in the year 2019-20 and has not been increased since to keep pace with inflation in the housing market.

In Budget 2025, taxpayers would be expecting this limit to be increased to ₹2.50 lakh without any conditions.

Partnership firms and limited liability partnerships are at present taxed at 30 per cent. They would be hoping for the rate to be reduced to at least 25 per cent. Budget 2024 proposed a simplified capital gains regime but there was a lot of back and forth after the Budget to clarify matters regarding the proposals. Budget 2025 may not want to add to the existing provisions on capital gains — both short-term and long-term.

Litigation backlog

Assuming that the new income tax regime will take a year or so to be enacted, Budget 2025 provides an opportunity for the Finance Minister to recommend measures to dispose of the existing backlog of litigation and to ensure that new litigation on the same matters is prevented.

The existing Vivad-se-Vishwas Scheme can be expected to be sweetened.

There could be a few changes made in Customs duties to balance the numbers in the Budget. Budget 2025 may not reverse the fall in the Sensex nor is it expected to be a “Big-Bang” Budget.

The writer is a chartered accountant