Union Budget 2025: Expectations on Simplifying Income Tax and GST

As the Union Budget 2025 nears, taxpayers and businesses eagerly anticipate reforms in India's taxation landscape. Simplifying Income Tax and Goods and Services Tax (GST) is a recurring demand from individuals, professionals, and industry bodies. The focus is on making taxation more transparent, reducing compliance complexities, and ensuring fair and efficient systems to stimulate economic growth.
Here’s a closer look at the key expectations regarding Income Tax and GST reforms in Budget 2025.

Income Tax Expectations

1. Clarity on New vs. Old Tax Regime 

Taxpayers are looking forward to a clearer, more beneficial structure between the old and new tax regimes. Simplifying the choice and providing more incentives under the new regime could make it more attractive. Although the government has made the new tax regime the default one.

2. Revised Tax Slabs and Rates

Adjusting income tax slabs and rationalising rates have been long-standing demands. Experts suggest creating more progressive slabs to reduce the tax burden on lower and middle-income groups while ensuring higher earners contribute proportionately.

3. Enhanced Deductions for Savings 

The existing deduction limit under Section 80C, currently capped at ₹1.5 lakh, is expected to be increased to ₹2.5 lakh or more. This would encourage higher savings and investments in tax-saving instruments like ELSS, PPF, and life insurance.

4. Increased Basic Exemption Limit 

Taxpayers are expecting the basic exemption limit to be raised from ₹ 2.5 Lakhs to ₹ 5 Lakhs under the old tax regime. This change could provide significant relief to middle-class individuals and enhance disposable income, spurring consumption.

5. Rationalisation of Capital Gains Tax 

Streamlining the capital gains tax structure across asset classes is a key expectation. A simplified, uniform tax rate and holding period could reduce confusion and encourage more retail participation in markets.

GST Expectations  

1. Streamlined GST Structure

The current 4-tier system (5%, 12%, 18%, and 28%) adds complexity, and the GST Council is contemplating adding another slab of 35%. Businesses are urging the government to simplify the GST structure by reducing the number of tax slabs. A move towards fewer slabs could make compliance easier.

2. Reduction in GST Rates 

Certain industries, particularly MSMEs and essential goods sectors, are expecting reductions in GST rates. Lower rates could make products and services more affordable, benefiting end consumers and boosting demand.

3. Ease of Compliance for Small Businesses 

Small and medium enterprises are keen on further simplification of GST returns filing. Measures such as quarterly return filings for smaller businesses and reducing the frequency of reporting could alleviate compliance pressures.

4. Input Tax Credit (ITC) Reforms 

Delays and restrictions in claiming input tax credits continue to be a challenge for businesses. The industry expects a seamless ITC mechanism that ensures timely refunds and fewer disputes.

5. Inclusion of Petroleum Products and Alcohol 

There is a growing demand to bring petroleum products and alcohol under the GST ambit. This could eliminate cascading taxes and bring greater transparency and efficiency to these high-revenue sectors.

Taxation Expectations from Industry Bodies 

• Lower Corporate Tax Rates: While the corporate tax rate was reduced in 2019, there is a call to further bring it in line with global benchmarks to attract more foreign investment.
• Tax Incentives for Startups: Startups are expecting an extension of tax holidays and relaxed compliance requirements to support innovation and entrepreneurship.
• Relief for MSMEs: Industry bodies propose special tax provisions or exemptions for MSMEs to help them recover from the impact of the pandemic and economic slowdowns.

Simplification of Income Tax and GST systems is not just a demand but a necessity for driving India’s economic growth by giving a boost to consumption demand. Reforms aimed at easing compliance, increasing transparency, and reducing tax burdens could empower individuals and businesses alike. Whether it’s restructuring tax slabs, introducing incentives, or rationalising GST rates, these changes could pave the way for a more efficient and equitable taxation regime.