Budget 2025 income tax: Raise 30% income tax slab; provide flat 30% deductions on gross income - here’s why

Budget 2025 income tax expectations: Finance Minister Nirmala Sitharaman should look to increase the income tax threshold for the 30% tax bracket in her Union Budget 2025, says Adhil Shetty, CEO of BankBazaar.

According to BankBazaar, three important income tax changes that need to be brought in Budget 2025 are; raising the 30% income tax threshold to Rs 18 lakh, restructuring tax brackets, and implementing a standardised 30% deduction on gross income.

Raise 30% Income Tax Slab to Rs 18 lakh

"The 30% tax slab has remained at ₹15 lakh since 2020, despite a 21% rise in the Cost Inflation Index," Shetty notes. "We propose increasing this threshold to ₹18 lakh to reflect inflation and offer relief to urban salaried individuals burdened by rising costs." This modification would help distribute the tax responsibility more equitably amongst higher-income earners.

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Enhance income tax brackets and not just the basic exemption limit

Shetty expresses concerns about solely increasing the tax-free income limit. "Calls to raise tax-free income to ₹10 lakh are well-intentioned but shift the tax burden to higher earners. Bracket enhancements should be secular, ensuring fairness across all income levels," he explains. "As per the AY2023-24 figures, just 2% of taxpayers contributed 77% of income tax. A balanced approach is necessary."

Give 30% flat deductions to encourage savings

Regarding diminishing long-term savings and insurance adoption, Shetty observes, "The absence of deductions in the new tax regime has led to reduced interest in essential financial protections. Life insurance penetration is dropping, and ELSS inflows are falling despite strong equity performance."

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He adds, "Fewer salaried individuals are engaging with small savings schemes, and interest in NPS remains low. These trends are concerning, especially amidst an economic slowdown, declining household savings, and stagnant incomes. The incentive to save and to insure—tax deductions—must continue."

Shetty advocates for a 30% flat deduction on gross income with a ₹15 lakh ceiling on deductions. "A simplified deduction structure would incentivise savings, insurance, and long-term financial planning, vital for household stability."

Also See: Budget 2025