Budget 2025: GTRI Recommends Raising Income Tax Exemption to ₹5.7 Lakh, Simplifying TDS

By: Admin
Date: January 22, 2025
Categories: Income Tax News, News
Reading Time: 4 Min

Introduction: Key Proposals for a Fairer Tax System
The Global Trade Research Initiative (GTRI) has proposed significant reforms for the Union Budget 2025. These include raising the income tax exemption threshold to ₹5.7 lakh, simplifying the Tax Deducted at Source (TDS) system, and equalizing tax treatment for bank deposits and equities. These recommendations aim to address inflation and simplify compliance while promoting household savings.

1. Adjusting Income Tax Exemption to Match Inflation
The current income tax exemption threshold of ₹2.5 lakh, unchanged since 2014, has lost its real value due to inflation. Annual inflation, averaging 5.7%, has reduced its purchasing power to just ₹1.4 lakh today.

Proposed Adjustments

  • Raise the Threshold: Increase the exemption limit to ₹5.7 lakh under the old tax regime to restore its 2014 value.
  • Update Deductions:
    • Savings deposit interest: Increase from ₹10,000 to ₹19,450.
    • Section 80C: Raise from ₹1.5 lakh to ₹2.6 lakh.
    • Medical insurance: Adjust from ₹25,000 to ₹41,000.

These measures aim to reduce the burden on middle-income taxpayers and exempt lower-income earners, like drivers and multi-tasking staff, from filing returns.

2. Simplifying the TDS System
The TDS framework, introduced in 1961 with four categories, has expanded to 40 categories and 13 versions of Tax Collected at Source (TCS), creating unnecessary complexity.

Key Issues with TDS

  • Most revenue comes from a few sources, such as salaries, contracts, dividends, and rent.
  • Numerous rates and thresholds increase compliance burdens.

Proposed Simplification

  • Remove TDS for less significant categories to streamline rules.
  • Utilize digitization and interconnected databases to maintain compliance without revenue loss.

These changes would reduce administrative burdens for taxpayers and tax authorities alike.

3. Equalizing Tax Treatment for Bank Deposits and Equities
Currently, tax treatment significantly favors equities over fixed deposits (FDs). While long-term capital gains (LTCG) on equities held for a year are taxed at 12.5%, FD interest is taxed at individual slab rates of up to 30%.

Proposed Solution

  • Cap the tax rate on FD interest (for deposits held over one year) at 12.5%.

This reform would encourage household savings in FDs, creating a level playing field between different investment options.

4. Reclassifying Futures and Options (F&O) as Speculative Activity
Under the current system, F&O trading is classified as non-speculative, allowing losses to offset other income.

Proposed Reclassification

  • Redefine F&O trading as speculative to restrict loss set-offs.

This would discourage excessive retail risk-taking and align taxation with the high-risk nature of F&O trading.

Why These Reforms Matter
GTRI Founder Ajay Srivastava emphasized the importance of these proposals:

  • Preserving Purchasing Power: Indexing tax exemptions and deductions to inflation ensures taxpayers retain their real income.
  • Simplifying Compliance: Streamlining TDS rules reduces administrative burdens for individuals and businesses.
  • Promoting Savings: Equalizing tax treatment for FDs and equities encourages balanced investment preferences.

“Inflation is a major worry for everyone. Raising tax exemptions, simplifying TDS, and equalizing tax treatment for FDs and equities will ensure a balanced and growth-oriented tax structure,” said Srivastava.

Conclusion: A Balanced Approach to Taxation
If adopted, these reforms would create a fairer and more efficient tax system. By addressing key issues such as inflation, compliance complexity, and investment disparities, the government can support taxpayers and foster economic growth.

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