Budget 2025 revises India’s tax regime with new slabs, higher Section 87A rebates, and updated TDS rules effective April 1, 2025.
The Budget 2025 introduced significant amendments to the Income Tax Act 1961, aiming to streamline the Indian tax framework. These modifications become effective on April 1, 2025, and are relevant for the fiscal year 2025-26 and subsequent periods. This article outlines the major changes individuals and businesses should understand for effective financial planning in FY 2025-26.
Major Income Tax Changes for Fiscal Year 2025-26
1. Income Tax Slabs for FY 2025-26 (AY 2026-27)
Budget 2025 proposed updated tax slab rates under the New Tax Regime, also known as the Default Tax Regime, as per section 115BAC. This initiative aims to increase individual savings and enhance purchasing power. These revised tax slab rates will apply to income earned from FY 2025-26 onwards. Under the new regime, the basic exemption limit has been raised to Rs. 4 lakhs.
Note: The Income Tax slab rates for the Old Tax Regime (Optional Regime) remain unchanged.
The following table compares the revised slab rates with those of the previous financial year, highlighting the impact:
| Income Tax Slabs for FY 2025-26 (AY 2026-27) | Income Tax Rates for FY 2025-26 (AY 2026-27) | Income Tax Slabs for FY 2024-25 (AY 2025-26) | Income Tax Rates for FY 2024-25 (AY 2025-26) | Changes made |
|---|---|---|---|---|
| Up to Rs. 4 lakhs | Nil | Up to Rs. 3 lakhs | Nil | Slab expanded by Rs. 1 lakh |
| Rs. 4 lakhs to Rs. 8 lakhs | 5% | Rs. 3 lakhs to Rs. 7 lakhs | 5% | Slab expanded by Rs. 1 lakh |
| Rs. 8 lakhs to Rs. 12 lakhs | 10% | Rs. 7 lakhs to Rs. 10 lakhs | 10% | Slab expanded by Rs. 2 lakh |
| Rs. 12 lakhs to Rs. 16 lakhs | 15% | Rs. 10 lakhs to Rs. 12 lakhs | 15% | Slab expanded by Rs. 4 lakh |
| Rs. 16 lakhs to Rs. 20 lakhs | 20% | Rs. 12 lakhs to Rs. 15 lakhs | 20% | Slab expanded by Rs. 5 lakh |
| Rs. 20 lakhs to Rs. 24 lakhs | 25% | Above Rs. 15 lakhs | 30% | Earlier single 30% slab (above Rs. 15L) split into two: Rs. 20–24L at 25% and above Rs. 24L at 30% |
| Above Rs. 24 lakhs | 30% |
2. Enhanced Rebate Under Section 87A
For taxpayers opting for the New Tax Regime, the rebate under Section 87A has been increased from Rs. 25,000 to Rs. 60,000. This adjustment allows taxpayers to enjoy tax-free income up to Rs. 12 Lakhs. The rebate for individuals choosing the Old Tax Regime remains at Rs. 12,500.
3. Increased TDS Thresholds
Effective April 1, 2025, significant revisions to Tax Deducted at Source (TDS) provisions have been implemented. These changes aim to alleviate the compliance burden for small taxpayers and facilitate business operations. The government has proposed higher threshold limits for various TDS sections applicable to both individuals and corporate entities.
From April 2025, the TDS threshold limits for specific sections were adjusted as follows:
| Section | Before 1st April 2025 | From 1st April 2025 |
|---|---|---|
| 193 – Interest on securities | NIL | 10,000 |
| 194A – Interest other than Interest on securities | (i) 50,000/- for senior citizens; (ii) 40,000/- in case of others when the payer is the bank, cooperative society and post office (iii) 5,000/- in other cases | (i) 1,00,000/- for senior citizen (ii) 50,000/- in case of others when the payer is a bank, cooperative society and post office (iii) 10,000/- in other cases |
| 194 – Dividend, for an individual shareholder | 5,000 | 10,000 |
| 194K – Income in respect of units of a mutual fund | 5,000 | 10,000 |
| 194B – Winnings from lottery, crossword puzzle Etc.& 194BB – Winnings from horse race | Aggregate of amounts exceeding 10,000/- during the financial year | 10,000/- in respect of a single transaction |
| 194D – Insurance commission | 15,000 | 20,000 |
| 194G – Income by way of commission, prize etc. on lottery tickets | 15,000 | 20,000 |
| 194H – Commission or brokerage | 15,000 | 20,000 |
| 194-I – Rent | 2,40,000 (in a financial year) | 50,000 per month |
| 194J – Fee for professional or technical services | 30,000 | 50,000 |
| 194LA – Income by way of enhanced compensation | 2,50,000 | 5,00,000 |
| 194T – Remuneration, Interest and Commission paid to partners | NIL | 20,000 |
4. Adjustments to Tax Collected At Source (TCS)
For FY 2025-26, the government has announced several crucial amendments to Tax Collected at Source (TCS) provisions. These changes aim to simplify compliance and lessen the burden on taxpayers.
The following TCS modifications will be implemented from April 2025:
| Section | Before 1st April 2025 | From 1st April 2025 |
|---|---|---|
| 206C(1G) – Remittance under LRS and overseas tour program package | 7 Lakhs | 10 Lakhs |
| 206C(1G) – Remittance under LRS for education if financed through educational loans | 7 Lakhs | Nil (No TCS Applicable) |
| 206C(1H) – Purchase of Goods | 50 Lakhs | Nil (No TCS Applicable) |
Note: Provisions of other TCS sections remain unchanged.
5. Extension of Time Limit for Updated Tax Returns
The deadline for filing an Updated Tax Return has been extended from 12 months to 48 months (4 years) from the conclusion of the relevant assessment year. This extension aims to encourage taxpayers to declare previously undeclared incomes and settle the corresponding taxes.
The additional tax liability, determined by the updated return filing timeline, is as follows:
| If ITR-U filed within | Additional Tax |
|---|---|
| 12 months from the end of the relevant AY | 25% of additional tax (tax + interest) |
| 24 months from the end of the relevant AY | 50% of additional tax (tax + interest) |
| 36 months from the end of the relevant AY | 60% of additional tax (tax + interest) |
| 48 months from the end of the relevant AY | 70% of additional tax (tax + interest) |
6. Benefits for IFSC Units
- The expiry dates for commencing operations of International Financial Services Centre (IFSC) units to qualify for tax concessions have been extended until March 31, 2030.
- Premiums paid on life insurance policies obtained from an IFSC office by non-residents are entirely exempt under section 10(10D), without any maximum premium limit.
7. Tax Exemption for Start-ups
Under Section 80-IAC, start-ups incorporated before April 1, 2030, are eligible for a 100% deduction on profits and gains for three consecutive years out of a ten-year period from their incorporation, subject to specific conditions.
8. Omission of Sections 206AB and 206CCA
Effective April 2025, both Sections 206AB and 206CCA of the Income Tax Act 1961 will be removed. This move aims to lessen the compliance burden on entities responsible for tax deduction and collection.
9. Deduction on Remuneration Paid to Partners
The limit for deductions available to partnership firms and LLPs for remuneration paid to partners has also been increased. The calculation limits were revised to allow for higher deductions during tax computation.
The following limits apply to determine the maximum allowable deduction for partners’ remuneration paid:
| Book Profit | Limit |
|---|---|
| On the first Rs. 6,00,000 of book profit or loss | Rs. 3,00,000 or 90% of the book profit, whichever is higher |
| On the remaining balance of book-profit | 60% of the book-profit |
10. Treatment of ULIPs as Capital Gains
Proceeds from Unit-Linked Insurance Plans (ULIPs) where the premium exceeds 10% of the sum assured or Rs. 2.5 lakhs annually will now be classified as capital gains and taxed accordingly (20% for Short-Term Capital Gains (STCG) and 12.5% for Long-Term Capital Gains (LTCG)). The exemption under section 10(10D) for ULIP proceeds will still apply when the annual premium is below Rs. 2.5 lakhs or 10% of the sum assured.
11. Relaxation of Deemed Let-Out Property Provision
Previously, homeowners could declare a Nil annual value for up to two self-occupied properties only if they could not reside in them due to work-related relocation. With the Finance Bill 2025, this restriction has been eased. Now, up to two house properties can be treated as self-occupied with Nil annual value, irrespective of the reason for their non-occupation.
12. Removal of Equalisation Levy
A 6% equalisation levy was previously imposed on digital advertisements when payments to non-resident service providers exceeded Rs. 1 lakh. This levy will be abolished from April 1, 2025.
Conclusion
These aforementioned changes are crucial for Fiscal Year 2025-26. Individuals and businesses should consider these modifications to effectively plan their finances and tax obligations for the upcoming year.
