Unified Tax Regime: A Game-Changer in FM Sitharaman's Budget 2025?

unified tax regime: The Union Budget: What Can Taxpayers Expect?

With the Union Budget 2025 just around the corner, taxpayers across India are eagerly waiting for announcements that could ease their financial burden and encourage savings. One of the most anticipated discussions revolves around the New Tax Regime. Currently, the New Tax Regime is the default tax system, but there are hopes for enhancements that could benefit many taxpayers. Let's dive into the details of the dual tax system and explore what might be in store.

Understanding India's Dual Tax System

India's dual tax system offers individuals the choice between the Old Tax Regime and the New Tax Regime. The New Tax Regime has been widely discussed since its introduction, as it provides lower tax rates but at the cost of eliminating most exemptions and deductions. On the other hand, the Old Tax Regime offers more exemptions, but the tax rates are higher.

The New Tax Regime is automatically applied unless you choose the Old Regime. This flexibility, while seemingly beneficial, can be a double-edged sword, as it requires careful calculation to determine which regime suits your financial situation best.

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The Old Tax Regime: What You Need to Know

The Old Tax Regime is still relevant for many taxpayers due to the significant deductions and exemptions it offers. For instance, Section 80C allows taxpayers to reduce taxable income by up to Rs. 1.5 lakh through investments in options like life insurance and the Public Provident Fund (PPF). In addition to this, there are exemptions for House Rent Allowance (HRA) and Leave Travel Allowance (LTA).

Here are the income tax slabs for individuals opting for the Old Tax Regime:

• Up to Rs. 2,50,000: No tax

• Rs. 2,50,001 to Rs. 5,00,000: 5%

• Rs. 5,00,001 to Rs. 10,00,000: 20%

• Above Rs. 10,00,000: 30%

  
  

For senior citizens, the tax slabs are a bit more generous, providing more room for tax-saving. These options make it attractive to those who are eligible for various exemptions and deductions.

The New Tax Regime: Simplification at a Cost

The New Tax Regime, introduced in 2020, was aimed at simplifying the tax structure by reducing tax rates while eliminating most exemptions and deductions. The system follows a simplified tax slab structure, but it means that taxpayers lose the opportunity to claim common deductions like HRA, LTA, and insurance premiums.

Here are the revised tax slabs under the New Tax Regime (Budget 2024):

• Income up to Rs 3 lakh: 0%

• Income from Rs 3 lakh to Rs 7 lakh: 5%

• Income from Rs 7 lakh to Rs 10 lakh: 10%

• Income from Rs 10 lakh to Rs 12 lakh: 15%

• Income from Rs 12 lakh to Rs 15 lakh: 20%

• Income above Rs 15 lakh: 30%

  
  

In addition, Budget 2024 brought some positive changes, like the standard deduction for salaried employees being increased to Rs. 75,000, alongside a 14% deduction on basic salary for investments in the National Pension System (NPS) for private-sector employees. These changes could make the New Tax Regime more attractive to those who don't have many exemptions to claim.

However, despite these updates, many taxpayers still find it difficult to switch to the New Tax Regime due to the limited allowances available. For high-income earners with various deductions, the Old Tax Regime still appears to be the better choice. The recent reports from the Central Board of Direct Taxes (CBDT) suggest that only 28% of taxpayers have opted for the New Tax Regime, while the majority have stuck with the Old one.

Streamlining the Tax System: The Call for a Unified Regime

Given the challenges with the current dual tax system, there is a growing call for a unified tax regime that combines the benefits of both systems. By offering simplified compliance and retaining some tax-saving options, such a system could provide greater benefits to a wider range of taxpayers.

Here’s a look at the proposed tax slabs for a unified regime:

• Up to Rs. 5,00,000: Nil

• Rs. 5,00,001 to Rs. 10,00,000: 5%

• Rs. 10,00,001 to Rs. 15,00,000: 10%

• Rs. 15,00,001 to Rs. 20,00,000: 15%

• Rs. 20,00,001 to Rs. 25,00,000: 20%

• Rs. 25,00,001 to Rs. 30,00,000: 25%

• Above Rs. 30,00,000: 30%

  
  

Incorporating deductions for key areas like Section 80C (investments in life insurance and PPF), Section 80D (medical insurance premiums), and home loan deductions could make the new system more taxpayer-friendly and encourage savings. This could bring back a balanced approach to tax planning that includes incentives for health, housing, and eco-friendly investments like electric vehicles.

Conclusion: The Path Ahead

As we approach Budget 2025, the expectation is high that the government will announce a more streamlined and taxpayer-friendly system. Whether through a unified tax regime or more targeted changes, the goal is to simplify the process, provide more room for tax-saving, and make it easier for individuals to plan their finances effectively.

In the meantime, it's important for taxpayers to stay informed about the current tax slabs and Income tax services available. Whether you're considering Company registration, GST registration, or need help with Income Tax return filing, consulting with our professionals at SS Auditors and Tax Consultants can help you navigate through the complexities of India's tax landscape.

As the tax system continues to evolve, we look forward to a future where tax compliance is simpler, and tax savings are within everyone’s reach.