Tax relief, more jobs: What the middle class expects from Union Budget 2025

Union Finance Minister Nirmala Sitharaman is set to present her eighth consecutive budget today (February 1). The common India is looking forward to the government’s financial plan with much expectation.

Stung by inflation, the middle class is hoping this budget will bring some relief in the form of tax cuts. Whether the budget addresses the issue of unemployment would also be something people will keenly watch.

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Let’s take a closer look.

Budget expectations: Income Tax relief

Reducing the burden of income tax is a major expectation of the salaried class. Individuals in the lower- and middle-income brackets have for long been hoping the Union budget would bring some relief, enhancing their purchasing power.

A Grant Thornton Bharat pre-budget survey revealed that 57 per cent of individual taxpayers want taxes to be lowered in this budget , reported Times of India (TOI).

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Shripal Shah, MD & CEO, of Kotak Securities told GoodReturns.In, “The upcoming budget holds promise for retail investors, particularly with expectations of tax relief in the lower income slabs. If the government reduces tax rates for smaller taxpayers, it could lead to higher disposable income in the hands of the common man.”

Finance Minister Sitaraman is likely to introduce a bill for a new direct tax law in the upcoming budget to replace the Income Tax Act of 1961. Speculations have emerged that the government could do away with the old tax regime. The government brought the new tax regime in 2020.

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There are expectations of revisions in the income tax slabs under the new tax regime in Union Budget 2025. Currently, the basic tax exemption limit under the new regime is Rs 3 lakh. This could be increased to Rs 5 lakh, resulting in more disposable income in the pockets of individuals and increased consumption.

Inflation, GST

Costly food items have hurt households as wages and salaries did not keep up with the rising inflation.

The hike in prices of vegetables, cooking oil, milk and packaged food affected household budgets.

The Reserve Bank of India (RBI) aims to keep inflation within its 2-6 per cent tolerance band.

As per Hindustan Times (HT), the government may not be able to do much about indirect taxes such as the Goods and Service Tax (GST), which is decided by the GST Council comprising the Union and state finance ministers.

However, if it lowers import duties on essential items like edible oil and rationalises taxes on petroleum products, it could bring some respite for consumers, as per the newspaper.

Partha Chatterjee, Dean of Academics and Professor of Economics at Shiv Nadar University, Delhi-NCR, told NDTV, that the Centre should focus on broadening the tax base and simplifying GST to give a fillip to consumer spending and economic activity. “Tax reforms, not cuts, are the way forward,” Chatterjee said.

Other Budget expectations

Experts believe the government could increase the standard deduction limit. As per TOI, the limit may be boosted from the current Rs 75,000 to Rs 1,00,000 under the new tax regime.

The standard deduction is a fixed amount deducted from your taxable salary.

Speaking to GoodReturns.In, Rahul Bajoria, India & ASEAN Economist at BofAS India, said, “To strike a balance between simplicity and tax saving benefits, the government could look for tweaking the standard deduction or the slab rates to improve disposable income, but we believe the implementation of these new rules could be pushed for the next fiscal year.”

All eyes will also be on income tax rebate under section 87A, which is given to taxpayers with an income up to Rs 5 lakh under the old tax regime or up to Rs 7 lakh in the new tax regime. According to TOI, the rebate limit can be increased to Rs 10 lakh under the new regime, giving some relief to middle income taxpayers.

The Central government’s focus is on making housing affordable for all. The sector needs more than 25 million (2.5 crore) affordable housing units by 2030 to meet urban housing demands, as per a Business Standard report.

This target could be hard to meet in case of a lack of tax incentives, especially in the wake of increasing property prices and high interest rates.

Experts say the finance minister should introduce a policy that could make house loans more affordable for individuals. “Individual taxpayers expect significant relief from the government in terms of providing incentives for first-time homebuyers, along with making home loans more accessible to them,” Rakesh Nangia, Founder and Managing Partner, Nangia & Co LLP, told Economic Times (ET).

What the Union Budget 2025 has for employment generation is also something that common citizens will expect. After agriculture, the real estate sector creates most jobs, making up 18 per cent of national employment. This sector is estimated to touch $5.8 trillion by 2047, contributing 15.5 per cent to India’s GDP, noted Business Standard. 

Any policy that hampers housing demand would have a far greater impact on the economy.

India needs to create more jobs for those entering the labour force. As per HT, a rise in government spending on infrastructure projects, and investment by the private sector in labour-intensive activities can help with this.

With inputs from agencies