Background
:-
The
Union Budget 2025, which is set to be presented by Finance Minister Nirmala
Sitharaman on February 1, 2025, is highly anticipated, as it will address the
pressing economic issues and outline the government’s fiscal strategy for the
upcoming year. Given the current economic landscape, which includes
post-pandemic recovery, inflation control, and a rising global economic shift,
many expect significant reforms in both Income Tax and Goods and Services Tax
(GST) structures. This article explores the anticipated changes in these two
critical areas, which affect both individual taxpayers and businesses in India.
India’s Growth in GDP has declined from last year growth percentage of 7-8% to 5-6% per annum. While for us to become Developed Nation, it is very important to achieve at least 10-12% growth rate per year.
For
achieving Such growth rate it is important that people have disposable income. The very Basic concept of taxation is
Taking From Rich and Giving to Poor. But what is happening GST and personal
Income tax Collections are recording new heights and incentives and tax
reductions are given to corporates. We hope the situation changes from this
budget.
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1. Expected Changes in Income Tax
Income
tax is one of the most discussed components of any Union Budget, as it directly
impacts a large portion of the Indian population. For Budget 2025, the
government is likely to focus on simplifying the tax system, enhancing
compliance, and fostering a more equitable distribution of income. Below are
some of the key areas where changes are expected:-
1.1 Revision of Income Tax Slabs and Rates
The
income tax slabs have remained a topic of discussion in the last few years, as
there have been repeated demands for a reduction in tax rates for individual
taxpayers, especially in the middle-income bracket. The introduction of a new
tax regime in the previous budgets, which provided lower tax rates without exemptions,
has been a mixed bag for taxpayers. While some have appreciated the simplified
structure, others still prefer the older regime with exemptions.
In
Budget 2025, there is a strong possibility that the government may further
tweak the income tax slabs to offer relief to taxpayers, especially in the
middle-income group. This could include:
0-10 Lakhs :- No Tax
10-15 Lakhs : 5%
15-20 Lakhs: 15%
20-30 lakhs : 20%
Above 30 lakhs : 30%
1.2 Joint Taxation of Married Couples
A new concept called Joint Taxation may be introduced. This
concept is very popular in many countries. According to this , income of Both
Husband and wife is clubbed and jointly taxed through Single Return of Income.
In that case , Income tax slab can be further extended to :-
0-15 Lakhs :- No Tax
15-20 Lakhs : 5%
20-30 Lakhs: 15%
30-50 lakhs : 20%
Above 50 lakhs : 30%
This concept is very beneficial for families in which only
one of the spouse is working.
1.3 Corporate Tax Reforms
In
addition to personal income tax, corporate tax rates are also expected to be
revisited in the upcoming budget. Following the reduction in the corporate tax
rate in previous budgets, the government may introduce further measures to
boost business growth. These may include:
- Incentives for MSMEs: Small and medium enterprises (SMEs) are the backbone
of the Indian economy, and further tax incentives may be introduced to
support their growth, such as increased tax rebates, exemptions, or lower
tax rates for MSMEs.
- R&D Tax Benefits: The government may propose enhanced tax benefits for
businesses investing in research and development (R&D), particularly
in sectors like technology, healthcare, and renewable energy.
1.3
Incentivize voluntary tax compliance:
There could be increased efforts to reward taxpayers who file their taxes on
time, with lower penalties for minor errors or omissions in their tax filings.
1.4 Promoting Tax Compliance
The
Indian government has been focused on increasing tax compliance and reducing
tax evasion. In Budget 2025, the government may:
Launch
new initiatives for digital tax filing and e-assessments: Building on the success of the faceless assessment scheme,
the government may expand its digital infrastructure to make tax filing and
assessments more streamlined and transparent.
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2. Expected Changes in GST
GST,
or the Goods and Services Tax, was implemented in 2017 with the aim of
simplifying the indirect tax structure in India. However, its implementation
has not been without challenges, including complex rules, multiple tax slabs,
and compliance burdens. In Budget 2025, the government is likely to address
several key issues related to GST.
2.1 Rationalization of GST Tax Slabs
The
current GST structure consists of multiple tax slabs: 5%, 12%, 18%, and 28%.
While this approach allows for flexibility, it has also led to confusion and
difficulty in compliance for businesses. In Budget 2025, there is a possibility
that the government will:
- Reduce the number of tax slabs to Two Slabs: Simplifying the structure by consolidating lower
rates like 5% and 12% into a single tax slab could help reduce the
compliance burden, particularly for small businesses.
- Increase the exemption limit
for small businesses: The
threshold for mandatory GST registration may be increased to provide
relief to smaller businesses that are currently under pressure due to
compliance requirements. The threshold limit is 40 lakhs turnover for
Goods and 20 lakhs for Services.
This Limit Should be increased to 1 Crore for Goods and 50 lakhs for Services.
2.2 Introduction of New GST Compliance Measures
GST
compliance has been a major concern for businesses, especially SMEs, due to
complex return filing processes and frequent changes in GST rules. The
government is expected to announce measures to ease compliance, such as:
- Easing GST return filing
requirements: The introduction of
simplified GST return formats and processes could make it easier for
businesses to comply with tax requirements.
- Streamlined invoice matching
system: The government may introduce
new initiatives to improve the invoice matching system, ensuring a faster
and more accurate input tax credit (ITC) mechanism.
2.3 Expansion of GST Exemptions
While
GST has brought a level of uniformity in taxation, certain sectors still
struggle with high tax burdens, particularly sectors that provide essential
goods and services. In Budget 2025, the government may consider:
- Extending GST exemptions to
essential goods and services:
Sectors such as healthcare, education, and agriculture could see an increase
in GST exemptions to provide relief to these vital industries. Also Term Insurance , health Insurance,
Education Industry , Medicines Should be exempted from GST.
- GST on electric vehicles and
renewable energy: As part of India’s commitment
to sustainable development and environmental protection, the government
may offer further tax incentives and exemptions for the electric vehicle
and renewable energy sectors.
2.4 Strengthening GST Revenue Collection and Anti-Evasion
Measures
The
government is likely to continue its focus on improving GST revenue collection
by enhancing enforcement and compliance mechanisms. This could include:
- Tougher measures against tax
evasion: With a strong emphasis on
increasing tax revenue, the government may introduce stricter anti-evasion
measures, such as greater scrutiny of high-value transactions and cross-checking
of GST returns.
- Improved technology and digital
tools: The government may also roll
out new technology tools to enhance GST data analytics, making it easier
to identify and address areas of revenue leakage.
3. Conclusion
The
Union Budget 2025 is expected to bring several key reforms in both Income Tax
and GST, focusing on simplification, compliance, and tax fairness. The
anticipated changes, including revisions to income tax slabs, increased
deductions, rationalization of GST rates, and greater enforcement against tax
evasion, could have a significant impact on individuals, businesses, and the
overall economy.
These
reforms are crucial in ensuring that India remains competitive in a rapidly
changing global economic environment. Whether these proposed changes will
provide immediate relief or long-term benefits remains to be seen, but there is
little doubt that the government’s focus on taxation will be central to India’s
growth and recovery in 2025.
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