Introduction
The Union Budget 2025, presented by H’ble Finance Minister Nirmala Sitaraman brought significant reforms for personal taxpayers. With changes in the personal tax rates, increase in rebate and increase in the TDS thresholds, the budget seems to have got the middle class much more relief than what was expected in the budget. The changes proposed in the budget are effective from F.Y 2025-26. The budget changes 2025 are discussed herewith.
The Budget provides rebate to taxpayers from complete waiver of income tax in case the total income does not exceed INR 12 lacs per annum there by providing relief to a large section of the population. While the existing rebate threshold stands at INR 7 lacs per annum, the budget proposal increasing the rebate has lightened up the eyes of many.
The government has also been aiming to rationalise and simplify the tax system and do away with the vast range of exemptions and deductions spread across various provisions of the Income Tax Act, 1961. The new regime was introduced in budget 2020 by insertion of section 115BAC which provided attractive slab rates for the taxpayers if they are ready to forego various specified deductions available under the Act.
In order to make the new regime attractive for the taxpayers who are availing deductions under old regime, slab rates under the new regime were revised and made more attractive since then time and again. The present budget of 2025, has proposed the revision of slab rates under the new regime as under:
Budget Changes 2025
Slab Rates
| Total income in INR | Rate |
| Up to 4,00,000 | Nil |
| From 4,00,001 to 8,00,000 | 5% |
| From 8,00,001 to 12,00,000 | 10% |
| From 12,00,001 to 16,00,000 | 15% |
| From 16,00,001 to 20,00,000 | 20% |
| From 20,00,001 to 24,00,000 | 25% |
| Above 24,00,000 | 30% |
As is evident from the above, the tax rate of 30% is now applicable only on taxpayers having total income of above INR 24 lacs. The budget has not proposed any changes in the old tax regime. This proposal is therefore a step in the right direction as the revised slabs will now attract the taxpayers to not opt for old regime to claim various deductions thereby making the tax system simplified.
TDS Threshold
The budget has also proposed increase in thresholds for tax deduction at source some of which are as under: –
| Sr. No. | Section | Current Threshold | Proposed Threshold |
| 1. | 194A – Interest income such as FD interest (other than interest on securities) | INR 50,000 for senior citizens INR 40,000 in case of others when payer is bank, post office or co-operative society INR 5,000 in all other cases | INR 1,00,000 for senior citizens INR 50,000 in case of others when payer is bank, post office or co-operative society INR 10,000 in all other cases |
| 2. | 194 – Dividend for individual shareholder | INR 5,000 | INR 10,000 |
| 3. | 194-I Rent | INR 2,40,000 per financial year | INR 50,000 per month or part of the month |
| 4. | 194K – Dividend income in respect of units of mutual fund or UTI | INR 5,000 | INR 10,000 |
From the above table, the proposals indicate that fixed deposits will become more attractive for senior citizens and other small earners. Increase in TDS thresholds for dividend income and income from mutual funds will encourage small earners to invest in shares and mutual funds. Enhanced threshold for rental income will reduce the number of TDS transactions and benefit small landlords. Such measures will boost economic development in India.
Other proposals
Additionally, the budget has also abolished the provision for TDS deduction at higher rate of up to 5% in case the deductee has not filed his returns for prior year.
This has reduced the compliance burden for the deductees to prove to the deductor that they have complied with the past years return filing. These proposals have therfore been welcomed by the middle-class earners of India.
The budget also announced that two properties of a homeowner will be considered as self-occupied without any questioning. Thus, in such cases, the notional rental value will be considered as Nil for tax purposes. Currently also, the taxpayers could claim two properties as self-occupied however it is subject to demonstration that it is self-occupied or cannot be self-occupied owing to employment at another place, etc.
These conditions have been done away with in the proposed budget. This proposal has been welcomed not only by taxpayers but also by realtors as it aims to boost infrastructure sector and encourage homeownership removing the burden of tax on notional income.
Conclusion
The H’ble Finance minister also announced that she will present the new direct tax bill which will be clear and simple to understand for taxpayers and tax administrators thereby leading to tax certainty and reduced litigation. The approach of the new bill shall be ‘trust first and scrutinise later‘. The aforesaid reforms proposed by the government supports the vision of upcoming new direct tax bill. With the new regime becoming more attractive, the deductions like HRA and Chapter VIA will broadly become redundant leading to simplification of the tax system.
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