Union Budget 2025-26: Big Changes Expected in India’s Tax System

Union Budget 2025-26: Big Changes Expected in India’s Tax System

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Finance Minister Nirmala Sitharaman will present the Union Budget for 2025-26 on February 1, 2025. Experts predict she will introduce the Direct Tax Code (DTC 2025) to replace the Income Tax Act of 1961. This new tax code aims to simplify tax laws, reduce disputes, and make filing taxes easier for everyone.

Shift to the New Tax Regime
Currently, taxpayers can choose between the old and new tax systems. However, government data shows that about 72% of taxpayers preferred the new system in FY 2023-24. With this trend, the government might gradually phase out the old tax regime and focus entirely on the new one.

Benefits for Middle-Class Taxpayers
DTC 2025 is expected to benefit middle-income earners, especially those earning between ₹5 lakh and ₹15 lakh annually. Key changes may include:

  • A simpler and unified tax structure.
  • Fewer tax slabs.
  • Easier processes for filing taxes.

Simplified Residential Status Rules
The new code may also simplify how residential status is classified. Categories like “Resident but Not Ordinarily Resident (R-OR)” and “Resident but Non-Resident (R-NOR)” might be removed to make rules clearer.

Fewer Deductions, Lower Tax Rates
Tax deductions and exemptions might be gradually reduced. To balance this, tax rates could be lowered, and the overall process made more straightforward.

This will be the Modi government’s first full budget in its third term, raising expectations, especially among the middle class, for major tax reforms and financial relief.