Unpacking the Indian Budget 2025: A Comprehensive Analysis of Direct Taxation and Its Wider Impact

The Indian Budget 2025 unveils a new direction in direct taxation, aiming to simplify tax processes and enhance economic vitality. However, it faces criticism for not adequately addressing the rising costs of health, education, and housing—the bedrock needs of the Indian middle class. This analysis delves into the implications of the exclusion of tax benefits like 80C, 80D, Interest on housing loans, and House Rent Allowance (HRA), and the resultant strain on middle-class aspirations amidst persistent inflation.

Revised Tax Regime and Its Shortcomings:

The budget's centerpiece is the new tax regime offering reduced rates aimed at providing relief to taxpayers. However, the elimination of significant deductions poses challenges, particularly to the middle class, who have traditionally relied on these exemptions to balance essential expenditures against disposable income.

Impact of Excluding Section 80C, 80D, Interest on Housing Loans, and HRA:

1. Section 80C – Savings and Educational Needs:

Under Section 80C, deductions have been a mechanism for encouraging savings through investments in Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), and insurance. These savings are often earmarked for significant future expenditures, notably educational needs amid escalating costs. With the removal of this deduction, the incentive to save wanes, potentially leaving families unprepared to manage educational inflation, thereby dimming avenues for educational advancement for middle-class families.

2. Section 80D – Healthcare Security:

Section 80D has provided deductions for health insurance premiums, effectively supporting families in managing medical expenses. Without these deductions, many may opt to forego adequate health coverage due to upfront cost considerations, leaving them financially exposed amidst rising healthcare inflation. This reduction in incentivizing comprehensive health security undermines the financial safety net of the middle class.

3. Interest on Housing Loans and HRA – The Housing Equation:

Affordable housing remains a pivotal issue for the middle class, particularly in urban centres. Deductions on housing loan interest have traditionally lightened the financial load for prospective homeowners. However, the absence of HRA benefits under the new regime leaves individuals with higher taxable incomes without proportionate relief mechanisms. This lack of direct support for mortgage holders and renters inhibits housing affordability, potentially slowing market participation.

Perceived Neglect of Middle-Class Essentials:

While the budget facilitates certain short-term reliefs through lower tax rates, it inadequately addresses inflation in education and healthcare and does not substantially support affordable housing. The ongoing inflationary trends in these critical sectors have not matched tax relief adjustments, thereby intensifying financial burdens on the middle class.

1. Education Inflation:

The budget's silence on combating educational costs is alarming, as educational attainment is a key vehicle for upward mobility. Without strategic interventions, escalating costs can marginalize middle-class families from accessing quality education, hampering potential socio-economic progress.

2. Healthcare Inflation:

Without corresponding tax relief or support, increased healthcare costs can push a significant portion of the middle class towards under or without insurance. This vulnerability could lead to substantial financial distress in health crises, compromising long-term financial planning.

3. Housing Support:

The lack of targeted measures to bolster affordable housing initiatives alienates aspiring homeowners or renters. As urbanisation accelerates, the absence of incentives could result in a growing segment of the middle class being priced out of sustainable living conditions, exacerbating socio-economic disparities.

Conclusion:

The Indian Budget 2025, while streamlined in its approach to direct taxation, misses an opportunity to address the pressing needs of the middle class amidst rising inflation. Without a clear roadmap to curb educational and healthcare inflation and bolster affordable housing, a significant demographic's economic security and aspirations are eroding. This oversight could have financial and social implications, urging policymakers to reconsider and adapt strategies that align with the middle class's foundational needs.