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There is a lot of enthusiasm among the taxpayers regarding the Union Budget 2025. Many important announcements have already been made by Finance Minister Nirmala Sitharaman to make the new tax regime more attractive. Especially the changes in standard deduction and tax exemption limits in the budget presented in 2024 had given relief to the taxpayers. In this article, let us know what the taxpayers expect from the upcoming budget and what are the current benefits of the new tax regime.
Big announcements of Union Budget 2024: What changed?
Tax exemption limit increased
In the Union Budget presented on July 23, 2024, the Finance Minister had increased the tax exemption limit from Rs 2.5 lakh to Rs 3 lakh under the new tax regime. This change proved to be a great relief for the middle class.
Increase in standard deduction
Standard deduction increased from Rs 50,000 to Rs 75,000. This change provided additional benefits to employed people and pensioners.
Upcoming Budget 2025: What can taxpayers expect?
Possibility of further increase in standard deduction
The standard deduction is likely to be increased from Rs 75,000 to Rs 1 lakh in the budget to be presented on February 1, 2025. Experts believe that this step can provide financial strength to the middle and lower class.
Benefit of deduction on insurance policy
- Deduction may be offered on premiums for term life insurance and health policies.
- This step can be taken with the aim of bringing more and more families under the ambit of insurance coverage.
Incentive on savings schemes
The focus of the government’s new regime is less on tax-savings, but some incentives may be given to promote savings schemes in the upcoming budget.
New tax regime: existing benefits and limitations
Relief in tax rates
The new regime is beneficial for those taxpayers who do not invest in tax savings. Tax rates here are low, and taxes are levied directly on income.
Provision of limited deduction
In the new regime, there is no benefit of deduction on savings schemes like PPF, ELSS, home loan, and children’s tuition fees.
Freedom to switch between regimes
Taxpayers are allowed to switch between the old and new tax regime. For example, if one chooses the old regime in FY25, he can shift to the new regime in FY26.
Tax exemption rule on life insurance policy
How to get the benefit of tax exemption?
In the new regime, there is a provision for tax exemption on the maturity amount of life insurance, but certain conditions are applicable for this:
- The annual premium of the policy should not exceed 10% of its sum assured.
understand with example
Suppose,
- Sum Assured: ₹50,00,000
- Maturity Amount: ₹55,00,000
- Annual Premium: ₹40,000
In this case, the policyholder will not have to pay any tax on the maturity amount of ₹55,00,000.
Steps towards making the new regime more attractive
government plan
- Limited deductions with low tax rates.
- More transparency and simplicity.
- The rules are being prepared keeping in mind the middle class and non-investors.
Why are the coming changes important?
The government wants people to take more insurance coverage and adopt health policies. Along with this, new schemes can be introduced to encourage financial savings.