The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, has significant implications for employees in India, particularly in terms of income tax relief, disposable income enhancement and job creation. Some of the key features can be summarised as under:
TAX RELIEF MEASURES
Income Tax Changes:
- Tax-Free Income Threshold: The Budget raises the income tax exemption limit to Rs. 1,200,000, (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) effectively making it tax-free under new tax regime for individuals earning up to this amount. For salaried employees, with the inclusion of a standard deduction of Rs. 75,000, the taxable income threshold rises to Rs. 1,275,000 (~$14,800).
- New Tax Slabs: The new tax regime introduces progressive tax rates starting from 5% for incomes between Rs 4 lakh and Rs 8 lakh, introduction of a new tax rate of 25% for Rs. 20 lakh to Rs. 24 lakh and escalating to 30% for incomes above Rs 2,400,000. This structure aims to ease the financial burden on middle-class taxpayers.
- Extension of Time-Limit: The time limit to file updated returns has been extended from two years to four years.
- Tax Deduction for Senior Citizens: The tax deduction limit for senior citizens has been doubled from Rs. 50,000 to Rs. 100,000.
- Medical Treatment Abroad: Expenditure for medical treatment abroad is excluded from perquisites under certain conditions. In case of a director of the company or a person who has a substantial interest in the company, these amenities and benefits will continue to be treated as perquisites irrespective of the salary earned. Therefore, the limit on salary specified shall only be applicable for an employee who is not a director nor a person who has a substantial interest in the employer company.
- TDS on Rent: The annual limit for Tax Deducted at Source (TDS) on rent has been increased from Rs.240,000 to Rs.600,000.
- Self-occupied or Unoccupied Property: The benefit of claiming the annual value of selfoccupied properties as nil will be extended for two such self-occupied properties without any condition.
- Small charitable trusts/institutions: Reduction of compliance burden for small charitable trusts/institutions by increasing their period of registration from 5 years to 10 years.
Estimated Savings:
- Employees earning up to Rs 1,300,000 can anticipate substantial savings due to these changes. For instance, an employee with an income of Rs 1,600,000 will see a tax benefit of approximately Rs 50,000, resulting in an effective tax rate of just 7.5%. This translates to more disposable income, encouraging increased spending and savings.
ECONOMIC IMPLICATIONS
Boosting Household Consumption:
- The new tax structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment. This is particularly crucial given the context of stagnant wage growth and high inflation that has affected middle-class families.
Impact on Employment:
- The Budget also allocates funds for employee training and administrative reforms, with over Rs 334 crore designated for these initiatives. This investment aims to enhance workforce skills and improve job readiness in various sectors.
Support for Gig Workers
The Budget includes provisions for gig workers, such as identity cards and healthcare registration through the e-Shram portal. This move is intended to formalize the gig economy and provide better support systems for non-traditional workers.
Ease of Doing Business
- Introduction of a scheme for determining arm's length price of international transaction for a block period of three years.
- Expansion of the scope of safe harbour rules to reduce litigation and provide certainty in international taxation.
- Exemption of withdrawals made from National Savings Scheme (NSS) by individuals on or after the 29th of August, 2024.
- Similar treatment to NPS Vatsalya accounts as is available to normal NPS accounts, subject to overall limits.
- Extension of the period of incorporation of start ups by 5 years to allow the benefit available to start-ups incorporated before 1.4.2030.
- Extension of the date of making investments in Sovereign Wealth Funds and Pension Funds by five more years, to 31st March, 2030, to promote funding from them to the infrastructure sector.
- Jan Vishwas Bill 2.0: The Jan Vishwas Bill 2.0 to decriminalize more than 100 provisions in various laws.
- The new Income-Tax Bill to be clear and direct in text so as to make it simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation.
Tax certainty for electronics manufacturing Schemes
- Presumptive taxation regime for non-residents who provide services to a resident company that is establishing or operating an electronics manufacturing facility.
- Introduction of a safe harbour for tax certainty for non-residents who store components for supply to specified electronics manufacturing units.
IMPLICATIONS FOR JOB CREATION AND ECONOMIC GROWTH
Inclusive Human Resource Development
- Credit Cards for Micro Enterprises: Introduction of customised credit cards with a Rs. 5 lakh limit for micro enterprises registered on the Udyam portal. 10 lakh cards to be issued in the first year.
- Scheme for First-time Entrepreneurs: A new scheme for 5 lakh women, Scheduled Castes and Scheduled Tribes first-time entrepreneurs to provide term-loans upto Rs. 2 crore in the next 5 years announced.
- Measures for Labour Intensive Sectors: Employment facilitation in sectors like footwear, leather, toy manufacturing, and food processing, creating numerous job opportunities.
CONCLUSION
Overall, the Union Budget 2025 (Finance Bill 2025) presents a comprehensive approach aimed at alleviating the financial pressures faced by employees in India. By increasing tax exemptions and introducing new slabs that favor middle-income earners, the Government seeks to enhance disposable income and stimulate economic activity. These changes are expected to have a positive ripple effect on consumption patterns and overall economic growth moving forward.
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