Budget 2025 and the Effect on Salaried Employees

Budget 2025 and the Effect on Salaried Employees

by with No Comment News & Updates

The Hon. Finance Minister Smt. Nirmala Sitharaman presented her 8th Union Budget in Parliament on 1st  February 2025. This Budget has been widely welcomed by all sections of society and hailed for its forward-looking and growth-oriented proposals. A special highlight is the tax reliefs for Middle-class taxpayers, especially salaried employees.

In this article, we will analyze the benefits that salaried employees will get through the proposed changes.

Budget 2025 has increased the nil-tax threshold to ₹ 12.75 lakhs for salaried employees and individuals with a higher standard deduction of ₹ 75,000 in the New Regime made in Budget 2024 from the earlier ₹ 50,000.  However, for those who opt for the Old Regime the standard deduction remains at ₹ 50,000. The tax exemptions from the previous ₹ 7 lakhs to ₹ 12.75 lakhs is a major jump and has been hailed as the biggest jump in the past 4 decades. The budget also provides TDS relief to senior citizens and other depositors making fixed deposits more attractive.

Major changes in Income Tax slabs and rates in Budget 2025

Considering the Old Tax Regime and the New Tax Regime, no changes have been proposed in the latest budget proposal. Instead, the Finance Ministry has adjusted the slabs, rates, and rebates in the New Regime (25-26) to make income up to ₹ 12 lakhs tax-free, which was ₹ 7 lakhs in the FY 24-25.

Old Income tax regime: (Existing and applicable for FY 22-23)
Old Income tax slab Income tax rates
Income slab of 2.5 lakh Nil
Income slab of 2.5 to 5.0 lakh 5%
Income slab of 5.0 to 10.0 lakh 20%
Income slab of 10.0 lakh and above 30%

 

New Income tax regime (Existing and applicable for FY 22-23)
New Income tax slab ( Previous) Income tax rates
Income slab of 2.5 lakhs Nil
Income slab of 2.5 to 5.0 lakhs 5%
Income slab of 5.0 to 7.5 lakhs 10%
Income slab of 7.5 to 10.0 lakhs 15%
Income slab of 10.0 to 12.5 lakhs 20%
Income slab of 12.5 to 15.0 lakhs 25%
Income slab of 15.0 lakhs and above 30%

 

New Income tax regime (Revised in Budget 2023)(For FY 23-24)
New Income tax slab (Revised) Income tax rates
Income slab of 3.0 lakhs Nil
Income slab of 3.0 to 6.0 lakhs 5%
Income slab of 6.0 to 9.0 lakhs 10%
Income slab of 9.0 to 12.0 lakhs 15%
Income slab of 12.0 to 15.0 lakhs 20%
Income slab of 15.0 lakhs and above 30%

 

The IT slab under the New Regime (24-25) are detailed below:
New Income Tax Slabs Income Tax rates
Income slab of 3.0 lakhs Nil
Income slab of 3.0 to 7.0 lakhs 5%
Income slab of 7.0 to 10.0 lakhs 10%
Income slab of 10.0 to 12.0 lakhs 15%
Income slab of 12.0 to 15.0 lakhs 20%
Income slab of 15.0 lakhs and above 30%

 

The Revised slabs under the New Regime (25-26) are detailed below:
Total Income Income tax Rates
Up to ₹ 4,00,000 Nil
4,00,001 to 8,00,000 5%
8,00,001 to 12,00,000 10%
12,00,001 to 16,00,000 15%
16,00,001 to 20,00,000 20%
20,00,001 to 24,00,000 25%
Above 24,00,000 30%

The Income slabs proposed under the New Tax Regime in Budget 2025 are a great boon to salaried employees as it helps them to save Income tax up to a maximum of ₹1,14,000. These savings are based on the premise that an individual claims only the standard rebate of ₹ 75,000 under the new tax regime. However, a salaried employee can save more tax if he claims a deduction on his employer’s contribution towards the National Pension Scheme (NPS).

The savings under the proposed New Income tax regime are detailed below:
Total

Taxable

 Income

 Tax Payable

as per the current

Tax rates 2024-25

 Tax payable as per

the

New Tax rates

2025-26

 Income tax saved through

Budget 2025
12,75,000 83,200 0 83,200
15,00,000 1,30,000 97,500 32,500
16,00,000 1,54,000 1,13,100 40,300
20,00,000 2,78,200 1,92,400 85,800
24,75,000 4,26,400 3,12,000 1,14,000
25,00,000 4,34,200 3,19,800 1,14,000

 

Comparison of tax payable (New Regime) for the FY 24-25 (AY 25-26) and FY 25-26 (AY 26-27)
Tax  Payable FY 24-25 (AY 25-26) Tax Payable FY 25-26 (AY 26-27)
Total Taxable Income Tax Rates Tax Payable Total Taxable Income Tax Rates Tax Payable
Up to 3,00,000 0% ₹ 0 Up to 4,00,000 0 % ₹ 0
3,00,001 to 7,00,000 5% ₹ 20,000 4,00,001 to 8,00,000 5% ₹ 20,000
7,00,01 to 10,00,000 10% ₹ 30,000 8,00,001 to 12,00,000 10% ₹ 20,000
10,00,001 to 12,00,000 15% ₹ 30,000 12,00,001 to 16,00,000 15% ₹ 60,000
12,00,001 to 15,00,000 20% ₹ 60,000 16,00,001 to 20,00,000 20% ₹ 80,000
15,00,001 to 25,00,000 30% ₹ 1,50,000

 

The proposed amendments in Budget 2025 may significantly boost the number of taxpayers who opt for the new tax regime. The middle-class income groups stand to gain the most, with the tax-free limit now raised up to ₹ 12.75 lakhs for salaried individuals and individuals, and the revised slabs reducing the overall taxable liability. Statistics show that 72% of taxpayers had opted for the New Tax Regime (23-24) up from 66% in the previous year. This trend is likely to continue due to the benefits the proposed amendments provide. However, taxpayers who benefit from deductions such as HRA, Home loans, and investments may still prefer the Old Tax Regime.

The proposed changes in Income Tax rates and rebates would put more spendable income in the hands of taxpayers which would hopefully encourage tax filing compliance. The flip side is that it could possibly discourage investment in savings schemes.

Conclusion

The proposed amendments in the Union Budget 2025 will greatly benefit the middle-class taxpayer, especially the salaried employee, and leave more disposable income in the hands of individuals thus enabling higher spending and investments.

Experts believe that the much-needed tax relief was necessary for boosting consumer demand, especially as it allows more disposable income in the hands of middle-class taxpayers. The proposed changes are bound to empower the taxpayer and promote greater financial inclusivity. GetifyHR has been at the forefront of supporting the needs of our clients in fulfilling their Income Tax needs and is fully equipped to handle the proposed changes. We are there to assist all our clients in seamlessly handling the statutory compliance requirements and keep the company fully compliant.

Budget Blog

Budget 2024: New Employment-linked Incentives for Employees and Employers in new Budget

by with No Comment News & Updates

In the Union Budget presented on July 23, 2024 Ms. Nirmala Sitharaman stated, “As part of the Prime Minister’s package, our government will implement the following three schemes for employment-linked incentive: enrollment in the EPF, focus on recognition of first-time employees, and support to employees and employers’ scheme.”

First-time employees who enroll in the EPFO are expected to profit from these three employee-linked incentive schemes:

  • Scheme A (one month’s salary for freshers)
  • Scheme B (job creation in manufacturing)
  • Scheme C (assistance to employers)

Bird’s Eye View:

Scheme A: one month’s salary for freshers

Those who are First-time Employment will receive a subsidy of up to ₹15,000, or one month’s salaries, under this policy. It pertains to all industries and individuals who are just starting their career with organization registered under EPFO and make less than ₹1 lakh a month. Hon’ble FM Ms.Nirmala Sitharaman declared that the employee will receive the subsidy in three installments (Direct Benefit Transfer).

Before collecting the second installment, the employee must complete a required online course in financial literacy in order to be eligible for this. Employer reimbursement of the subsidy is required if the first-time employee’s job ends within a year of hiring. The duration of this program is two years.

Here is a detailed analysis of each scheme, including its main features and advantages.

Phenomenal Advantages:

Financial Assistance: New hires will be given a subsidy equal to one month’s salary, up to ₹15,000, which will be paid out in three installments as Direct Benefit Transfer.

Inclusivity: Relevant to new workers entering the workforce with organization registered under EPFO who make less than ₹1 lakh per month, across all industries.

Financial Literacy: To encourage financial understanding, employees must successfully finish a required online course in financial literacy before becoming eligible for the second installment.

Employment Retention Incentive: To encourage longer-term employment, employers are required to return the subsidy if the employment job ends within a year.

Breakthrough: Meant to make it easier for new hires to adjust to the workplace during their first few months.

Scheme B: Manufacturing Sector Job Creation

Employers-both corporate and non-corporate that have made EPFO contributions for the past three years are eligible. It can be used in the manufacturing industry for significant first-time employee hiring. The employer is required to hire a minimum of 50 or 25% of the baseline in prior non-EPFO enrolled workers.

Employer Incentive: Designed to encourage long-term EPFO membership, this incentive is applicable to companies that have contributed to the organization for three years.

Targeting significant recruiting in the manufacturing industry, the law requires firms to add at least fifty new employees, or 25% of their current workforce, whichever is higher.

Economic Growth: The program seeks to promote industrial growth and economic development by concentrating on the manufacturing sector.

Insight: Manufacturing employers who have contributed to the EPFO for at least three years will be qualified. Nonetheless, if the number of EPFO employees from the prior year is less than 50, the company must hire at least 25% of the baseline.

Employees having a monthly salary of up to Rs. 1 lakh who are EPFO-registered direct payroll (in-sourced) would be eligible.

The four-year subsidy will be split evenly between the company and the employee. It will be computed as follows: 24% of the wage or salary for the first and second years, 16% for the third, and 4% for the Fourth.

In addition to the subsidy specified under Scheme A, the employer will receive this one as well. However, should the employee’s employment end within a year, the company will be required to reimburse the subsidy amount.

Breakthrough: Scheme B is a focused strategy to support the manufacturing industry by providing incentives for large-scale labor growth.

Scheme C: Assistance to Employers in Boosting Employment

This program is applicable to employers who sustain the higher level of employment and add at least two employees (for companies with fewer than fifty employees) or five employees (for companies with fifty or more employees) above the baseline (the number of EPFO employees from the prior year). It also applies to employees whose monthly salary does not exceed ₹1,00,000.

New hires under this section do not necessarily have to be members of EPFO. Under this, the government would pay the company back for the additional employees hired the year before, up to ₹3,000 per month, for the EPFO employer contribution. This will last for two years. It does not apply to employees who are covered by Scheme B.

Baseline Increase: Encourages employers to hire more people than the baseline from the prior year.

Financial Compensation: The government would pay back the EPFO employer contribution for a maximum of ₹3,000 per month for two years for each new employee hired.

Wide Applicability: This program is available to a greater variety of workers because it does not require new employees to be EPFO members.

Suitable for Varying Business Sizes: Customized cutoff points for both big and small employers guarantee that companies of all sizes can profit.

Emphasis on High-Salary Jobs: Applied to workers earning up to ₹1 lakh per month, this initiative aims to improve workforce quality by focusing on higher-paying positions.

Insight:

Scheme C- will be eligible if they add at least two employees (for those with less than fifty employees) or five employees (for those with fifty or more employees) above the baseline.

The government will repay employer contributions to EPFO up to Rs. 3,000 per month for a period of two years. On the other hand, payment for the prior quarter will be made on a quarterly basis if a company creates more than 1000 jobs.

Employees who make less than Rs. 1 lakh per month, regardless of whether they are new to EPFO, will be eligible under this scheme.

Enhancement: The goal of Scheme C is to promote long-term job growth by giving financial assistance to companies that hire more people.

Conclusion:

Union Budget 2024 is known to be brimming with Employment-Linked Incentive Schemes altogether. If you are in need of any clarification in this regard, GetifyHR, the paramount Compliance and Payroll Service Provider will lend the needed assistance. Our services preserve compliance, improve employee happiness, and guarantee flawless payroll management.