Budget 2025: Why Your Income Tax Bill Isn't Dropping — Despite Hopes

 

📰 Introduction

As Budget 2025 rolled out, many anticipated a cut in income tax. But despite adjustments like zero tax up to ₹12 lakh, overall income tax hasn’t substantially decreased for most. At Manika FinTax Solutions, we explore the three key reasons behind this trend—backed by real data, examples, and actionable tips to maximize your tax planning.

1. Government’s Reliance on Income Tax Revenues

Over the past decade, GST and corporate tax reforms have underperformed against expectations. GST revenue has often missed targets, while corporate tax cuts led to a fiscal revenue shortfall. Consequently, the government has grown more dependent on income tax to maintain fiscal stability. Cutting slabs further risks widening the fiscal deficit—something the finance minister cannot afford 

2. Structural Limits on Tax Relief for Salaried Individuals

Unlike businesses or consumption taxes, income tax for salaried people is deducted at source via TDS—making it a fixed, predictable stream. Even though the exemption threshold was raised (now ₹12.75 lakh including standard deduction), those earning above this still see tax deducted pre-emptively 

Illustration:

A salary of ₹20 lakh:

• Under old regime, tax liability roughly ₹2.3 lakh.

• After 2025 relief, taxable slab above ₹12 lakh still starts at ₹1.6 lakh which reduces liability—but doesn’t eliminate it entirely.

3. Limited Room for Further Relief

The government did tweak slabs—you’re now exempt till ₹12.75 lakh, with new slab rates extending ₹24 lakh. But beyond that, marginal rates (20–30%) remain. The fiscal headroom to ease these slabs further is limited. Any relaxation must be balanced against competing priorities like infrastructure and subsidies .

📊 Side-by-Side Comparison of 2024 vs 2025 New Regime Slabs

Income Range (₹)	2024 Rate	2025 Rate
0–4 L	0%	0%
4–8 L	5%	5%
8–12 L	10%	10%
12–16 L	15%	15%
16–20 L	20%	20%
20–24 L	N/A	25%
Above 24 L	N/A	30%

Note: No tax up to ₹12.75 lakh due to rebate + standard deduction.

🎯 Practical Tips to Lower Your Tax Outgo

1. Maximise Deductions

   • Invest in ELSS, PPF, or NPS under Section 80C.

   • Claim deduction up to ₹75,000 on standard deduction.

   • Take exemptions for home loan interest, health insurance (Section 80D), rent (Section 80GG).

2. Opt for the Most Suitable Regime

   • Compare new vs old regime: the latter may still offer advantages via exemptions.

   • Example: A ₹30 lakh earner with ₹5 lakh in exemptions could benefit more from the old regime.

3. Time Your Income and Expenses

   • Shift bonuses or capital gains to align income within a lower bracket.

   • Pay insurance premiums or school fees before March to qualify for deductions in the same fiscal year.

4. Stay Tax-Savvy with TDS

   • Avoid TDS surcharges by maintaining appropriate investments.

   • Submit Form 15G/15H where eligible to prevent unnecessary TDS.

5. Invest in Tax-Free Instruments

   • Utilize PPF, EPF, and relevant small savings for EEE (exempt–exempt–exempt) benefits.

🧠 Real-Life Example

Ravi, a 35-year-old working in Mumbai:

• Annual salary: ₹18 lakh.

• Standard Deduction: ₹75k → taxable ₹17.25 L.

• Tax calculation (2025 new regime):

  • 0–4 L: 0%

  • 4–8 L: 5% = ₹20k

  • 8–12 L: 10% = ₹40k

  • 12–16 L: 15% = ₹60k

  • 16–17.25 L: 20% of ₹1.25 L = ₹25k

• Total Tax = ₹1.45 L (≈8% effective rate)

By adding ₹150k in 80C investments and paying health insurance, Ravi reduces taxable income and saves another ₹20k in tax liability. Still, pre-tax obligation remains significant.

✅ Conclusion

Though Budget 2025 offered much-needed relief, income tax reduction is modest for most. The state’s dependency on this reliable revenue stream, structural limitations of TDS, and fiscal constraints limit how far cuts can go. However, proactive planning—leveraging deductions, regime comparisons, timing income—can make a meaningful difference at your end.

❓ FAQs

1. Why isn’t my tax zero even if income is under ₹12.75 L?
Tax applies only on income after standard deductions and rebates. If your gross exceeds ₹12.75 lakh, you’ll owe tax on the residual amount.

2. Should I switch between new and old tax regimes?
Yes—evaluate exemptions (like HRA, LTA) and investments. Old regime may be better if you invest heavily.

3. Can I avoid TDS if my annual income is high but exemptions place me under bracket?
Use Form 15G/H and communicate with your employer to avoid excess TDS.

4. What’s the highest slab in Budget 2025?
After ₹24 lakh, the top marginal rate remains 30%.

5. Will future Budgets bring deeper cuts?
With tight fiscal conditions, large slab cuts seem unlikely in near term.

📞 Need Help Filing?

Want to maximize your deductions, reduce TDS, and make budgeting simpler? Manika FinTax Solutions offers personalized tax filing support. Contact us now for expert assistance tailored to your needs!

Keywords: Budget 2025 analysis, income tax relief, TDS tips, tax slab changes, new vs old regime, maximize deductions, Budget 2025 India