Budget 2025: Reasons for Including HRA and Raising the Standard Deduction in the New Tax System

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Experts are advocating for HRA inclusion and a Rs 1 lakh standard deduction in Budget 2025 as the focus shifts to the new tax regime amid growing expenses and less discretionary incomes.

Will this year’s budget lessen the financial load on taxpayers and overhaul the rules for the new tax system? Taxpayers are looking for a wish list that will lessen their tax burden as Budget 2025 draws near.

What will be the new HRA limit in 2025

On February 1, individual taxpayers anticipate that Finance Minister Nirmala Sitharaman will offer a financial masterstroke. The focus is on the new tax regime due to growing expenses and less discretionary incomes, and experts are advocating for HRA inclusion and a Rs 1 lakh standard deduction in Budget 2025.

The Finance Minister increased the standard deduction and changed the tax slabs under the new tax regime last year, according to Kuldip Kumar, Partner at Mainstay Tax Advisors. Given high interest rates, growing living costs, and the need to increase spending, taxpayers anticipate further relief this year. Any respite will boost people’s disposable income and promote economic expansion.

HRA Exemption

Requests from taxpayers to include HRA exemptions in the new tax framework are among the most frequent. This benefit is currently exclusive to the previous system.

Mayank Mohanka, Founder-Director of TaxAaram.com, explained, “Housing is a basic necessity, not a discretionary expense. Many taxpayers stick to the old regime to retain the HRA benefit. Including it in the new regime could encourage more people to make the switch.”

Calculation of HRA

Calculation of HRA: –

HRA exemptions currently provide tax savings. The exemption amount is calculated as the lowest of:

  • Actual HRA received.
  • 50% of basic salary (40% for non-metro residents).
  • Rent paid minus 10% of basic salary.

According to experts, adding this exemption would make the new system more workable for taxpayers who pay high housing expenses.

Standard Deduction Increase

There have been proposals for an increase in the standard deduction due to rising household spending and inflation. The deduction under the new regime was increased from Rs 50,000 to Rs 75,000 in Budget 2023. Experts, however, feel that this sum is inadequate.

Abhishek Soni, Co-Founder of Tax2Win, said, “The standard deduction should be raised to Rs 1 lakh to match the surge in living expenses. For instance, a salaried individual earning Rs 15 lakh may spend Rs 7-9 lakh annually on various expenses, which are already taxed through GST or VAT. A higher deduction would help offset this burden.”

what will be the new HRA in budget 2025

A simpler income tax return (ITR) filing procedure is also being advocated by tax experts, especially for non-resident Indians (NRIs). NRIs encounter obstacles such as restricted alternatives for digitally validating returns and trouble getting refunds straight into foreign bank accounts.

Kumar emphasized the necessity of the modifications, stating, “NRIs are struggling with the 30-day time limit to submit the ITR-V in physical form to the tax department. Extending this period to 120 days or offering more e-verification options would address their concerns.”

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