For years, the concept of taxation has been the way countries around the globe raise funds to help them function seamlessly. India is no different. India's tax system is dependent on income and various other factors and the system has certain rules in place that have been put in place by both central and state players. Tax revenue, i.e. the funds collected through these taxes helps the country fund most essential services. Some of these essential services include bettering the country’s infrastructure like roads, railways, bridges, dams, etc. Apart from this, taxes also help fund public healthcare, the defence sector, education and civil services.
With India's FY24 tax-GDP ratio standing at 11.7% for the Centre and close to 18.5% for the centre+states, the changes in taxes will add to the further development of the country.
Introduction
India’s taxation system is a well-established one that has well-defined roles for both Central and State Governments as well as local bodies. The Central Government is responsible for levying taxes on income, except for agricultural income, which is the State Government’s responsibility. The central government is also responsible for levying customs duties, central excise and service tax.
State Governments, on the other hand, are responsible for levying Value Added Tax (VAT), stamp duty, land revenue, tax professions and State Excise tax. Tax on property, octroi and utilities like drainage, water supply etc are levied by local bodies.
The past 10-15 years have seen the country’s taxation system go through various reforms. With the rationalization of tax rates and simplification of tax laws, the results of which have been smooth tax payment systems, better compliance and better tax enforcement, India’s taxation system has grown manifold.
Here is a look at how the Union Budget 2025 can contribute further towards the growth of the country.
Key Announcements for the Tax Changes
Introduction of new income tax bill the following week
Hike in basic exemption limit
No tax on income for up to ₹12 lakh under new tax regime
No tax on income for up to ₹12.75 lakh for salaried people, because of the standard deduction of ₹75,000 under the new tax regime
Changes in personal tax by hiking the threshold limit on TDS rates on rent from 4.2 lakh pa to 6 lakh pa
Taxes collected at source on education remittance from loans were removed.
The tax deduction limit for senior citizens doubled to ₹1 lakh
TCS on remittance under the Liberalised Remittance Scheme increased from ₹7 lakh to ₹10 lakh
₹4 to 8 lakh - 5%
₹8 to 12 lakh - 10%
₹12 - 16 lakh - 15%
₹16 - 20 lakh - 20%
₹20 - 24 lakh - 25%
₹24 lakh plus - 30%
Impact Analysis of Budget 2025 on the Tax Changes
With the announcements that the industry saw as a part of the Union Budget 2025 under Finance Minister Nirmala Sitharaman, the sector is undoubtedly going to be a witness to many developments. Let us have a look at some of them.
With the introduction of higher income tax exemptions, disposable income will receive a major boost. This will play a crucial role in reviving demand in the sector.
Promotion in the ease of doing business
The growth of voluntary compliance leads to a reduction in compliance burden.
Ease difficulties for the middle class and increase employment and investment opportunities.
Comparison with Budget 2024 Provisions
Some of the provisions from the Union Budget 2024 included:
Increase in the standard deduction for salaried individuals to ₹75,000 from ₹50,000 under the new tax regime.
For individuals with pension income, family pension deduction increased to ₹25,000 from ₹15,000 under the new regime.
The tax slab after the 2024 budget looked like this:
₹3 to 7 lakh - 5%
₹7 to 10 lakh - 10%
₹10 - 12 lakh - 15%
₹12 - 15 lakh - 20%
Above ₹15 lakh - 30%
Increase in the taxation of Short-Term Capital Gain for particular equity shares, increased to 20% from 15%
Increase in exemption of Long-Term Capital Gains on the transfer of equity shares or equity-oriented units from ₹1 Lakh to ₹1.25 lakh per year. Rate increased from 10% to 12.5%.
Abolishment of Angel Tax
Reduction in the corporate tax on foreign companies from 40% to 35%
Future Outlook for the Retail Industry Post-Budget 2025
Some of the main impacts that the proposals can have on the sector include a crucial boost to the disposable income in the country, thanks to the higher income tax exemption. As a result, the demand sector will be able to gain momentum. The tax reforms introduced will also help the ease of doing business further and support the growth in voluntary compliance, leading to a considerable decrease in the burden associated with it. These reforms will also help Increase employment and investment opportunities for the middle class in the long run.
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