Budget 2025-26: Taxpayers expect greater exemption limit, simpler filing

Lightening the burden on the middle class will encourage them to spend more, say experts

India’s taxpayers are hopeful that the Union Budget for 2025-26 on February 1 will introduce reforms that will make filing taxes simpler and easier.

 

In the previous budget, the finance minister had announced a thorough review of the Income-tax Act, 1961. Since then, various stakeholders have submitted their recommendations to the government. 

 

“The government has also been working on simplifying Income Tax filing rules to make it less tedious for taxpayers and even refining legislations for timely settlement for disputes,” said Ritika Nayyar, partner, Singhania & Co. (a law firm)

 

“A few proposals could simplify certain complex income calculations, reducing the number of additional forms, creating a single definition of tax year etc. If the basic exemption limit is increased, this may also do away with the tax filing requirement for a large section of people,” she said.

 

Tax experts say various measures could help people in filing taxes:

 

Reduction of tax slabs: The government should revise tax slabs and reduce rates for individuals earning up to Rs 15 lakh annually. This will provide relief to the middle-class, potentially increasing overall disposable income and boost consumption.

 

Increased standard deductions: A proposal to raise the standard deduction from Rs 75,000 to Rs 150,000 has gained significant traction. This change would provide taxpayers with immediate financial relief by enabling them to reduce their taxable income by offsetting everyday expenses.

 

Introduction of a direct tax code: There is speculation regarding the potential introduction of a new direct tax code to replace the Income Tax Act. Experts believe this would modernise and simplify tax compliance, but such a major change may not occur immediately.

 

“Revising the Section 80C limit is important and much-needed to encourage and promote investments in tax-saving instruments. Investment in key financial instruments like Tax-Savings FDs, PPF, etc. can help people build a corpus for the future and navigate financial uncertainties,” said Shefali Mundra, tax expert at ClearTax.

 

What will be impact of simplified tax filing

 

Reduced compliance costs: By minimising paperwork and clarifying requirements, taxpayers may find it less burdensome to file their taxes.

 

Enhanced clarity: The use of formulas and tables could demystify complex calculations, making it easier for individuals to understand their financial obligations.

 

Lower dispute rates: A clearer system may lead to fewer disputes with tax authorities, fostering a more cooperative relationship between taxpayers and the government.