Union Budget 2025-26 expectations: A wishlist for taxpayers

Finance Minister Nirmala Sitharaman is set to present her eighth Union budget in a row on February 1. Taxpayers, particularly the salaried and middle-income groups, are eager to see if the FM addresses their financial concerns.

Here are the key expectations for this year’s budget.

1. Increase in basic tax exemption limit
The current basic tax exemption limit of Rs 3 lakh under the new tax regime, introduced last year, has not fully addressed the financial strain caused by rising inflation. Raising this limit to Rs 5 lakh would provide significant relief to taxpayers by increasing their disposable income. This measure is expected to enhance purchasing power and stimulate economic activity, making it a timely intervention in the face of escalating living costs.

2. Higher I-T rebate
The existing income tax rebate under Section 87A is capped at incomes up to Rs 7 lakh. Increasing this rebate threshold to Rs 10 lakh would provide much-needed relief to middle-income earners. With inflation affecting purchasing power, this change would help stabilise household finances and encourage spending in key sectors.

3. Hike in standard deduction
Currently set at Rs 75,000, the standard deduction for salaried individuals and pensioners could be raised to Rs 1 lakh. This adjustment acknowledges the rising cost of living and helps taxpayers manage their expenses effectively, especially in light of stagnant wage growth in many sectors.

4. Doubling tax exemption for savings account
The tax exemption for savings account interest, currently capped at Rs 10,000 under Section 80TTA, has remained unchanged for years. Increasing this limit to Rs 20,000 would provide relief to taxpayers opting for the old tax regime, many of whom rely on savings interest for supplementary income. This change would also encourage savings and support financial stability.

5. Higher home loan interest deduction
For those opting for the old tax regime, the current deduction for home loan interest under Section 24(b) is Rs 2 lakh. Increasing this limit to Rs 3 lakh would make homeownership more affordable, especially in urban areas where housing costs are skyrocketing. This reform would also provide a boost to the real estate sector.

6. Capital gains tax reform
In the last budget, the tax rate on long-term capital gains (LTCG) for listed shares was increased from 10 per cent to 12.5 per cent, affecting investor returns. This year, taxpayers expect relief through an increase in the LTCG exemption limit from Rs 1.25 lakh to Rs 2 lakh or higher. Such a move would offset the impact of the higher tax rate, incentivise long-term investments, and align with efforts to encourage participation in equity markets.

7. Simplified tax compliance for NRIs
Non-Resident Indians face numerous challenges in filing their tax returns and other forms. Introducing alternative verification methods such as OTPs on foreign mobile numbers or email-based authentication could resolve these issues. These measures would simplify compliance, reduce delays, and foster better engagement with NRIs, who often contribute significantly to the Indian economy.

8. Tax benefits for EVs
With EV adoption on the rise, incentivising this transition is critical to achieving sustainability goals. Reintroducing tax exemptions for interest paid on EV loans would encourage people to switch to electric vehicles. This measure would make EVs more affordable for middle-income households while promoting greener transportation and reducing carbon emissions.

As the FM prepares to present the budget, these expectations reflect a strong desire to balance taxpayer relief and economic growth. Let’s hope for a budget that truly delivers for all.
(The writer is a Chartered Accountant.)