The Union Budget 2025 introduced key amendments to the Income Tax Act, 1961, aimed at simplifying the Indian tax structure and boosting disposable income. These changes will come into effect from 1st April 2025 and will apply for the Financial Year (FY) 2025-26 and Assessment Year (AY) 2026-27.
In this article, we break down the top 10 changes that every taxpayer—whether salaried, self-employed, or business owner—should be aware of as to plan better and remain compliant.
Revised Income Tax Slabs under the New Tax Regime (Section 115BAC)
The New Tax Regime becomes the default regime from FY 2025-26 onwards. The revised income tax slab rates are:
| Income Slabs | Tax Rates |
|---|---|
| Upto 4,00,000 | NIL |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,000 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Increased Rebate Under Section 87A
Under the New Tax Regime, the rebate under Section 87A has been increased from Rs. 25,000 to Rs. 60,000, making income up to Rs. 12 lakh tax-free.
Old Tax Regime Rebate remains capped at Rs. 12,500 (for income up to Rs. 5 lakh).
Enhanced TDS Thresholds
Effective from April 2025, several TDS threshold limits have been increased, easing the compliance burden:
| Section | Nature | Before 1st April 2025 | After 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 | Dividends, 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 | ₹10,000 (Annual) | ₹10,000 (Per Transaction) |
| 194BB | Winnings from horse race | ₹10,000 (Annual) | ₹10,000 (Per 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 on Brokerage | ₹15,000 | ₹20,000 |
| 194I | Rent | ₹2,40,000 (Annual) | ₹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 |
Note :
Provisions of other TDS Sections remain the same.
Key TCS Changes: Higher LRS Threshold, Removal of TCS on Goods
| Section | Nature | Before 1st April 2025 | After 1st April 2025 |
|---|---|---|---|
| 206C(1G) | Remittances under LRS & Overseas Tour Program Package | 7,00,000 | 10,00,000 |
| 206C(1G) | Remittances under LRS if financed through educational loans | 7,00,000 | NIL |
| 206C(1H) | Purchase of Goods | 50,00,000 | NIL (Removed) |
Extended Deadline for Filing Updated Returns (ITR-U)
The deadline for filing an Updated Tax Return was extended from 12 months to 48 months (4 years) from the end of the relevant assessment year. Additional tax liability applicable based on the timeline of filing the return is as follows:
| Filing Timeframe | Addition 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) |
Boost for IFSC Units & Non-Residents
- Tax holiday extended: Units in International Financial Services Centres (IFSCs) can now commence operations till 31st March 2030.
- Life Insurance Premiums from IFSC-based offices availed by non-residents are fully exempt from tax, irrespective of premium amount.
Start-Up Tax Exemption Extended
Start-ups incorporated before 1st April 2030 will continue to enjoy 100% deduction of profits for 3 consecutive years out of any 10 years under Section 80-IAC, subject to conditions.
Removal of Sections 206AB and 206CCA
To reduce red tape, sections 206AB and 206CCA (which mandated higher TDS/TCS for non-filers) have been scrapped. This simplifies TDS compliance and prevents cash flow issues.
ULIP Taxation Clarified
Unit Linked Insurance Plans (ULIPs) will be taxed as capital gains if the annual premium exceeds:
- Rs. 2.5 lakhs, or
- 10% of the sum assured
LTCG and STCG rates will apply. Section 10(10D) exemption continues for compliant ULIPs.
Other Notable Changes
1. Relaxation in Deemed Let-Out Rule
Up to 2 house properties can be claimed as self-occupied with zero annual value, without any conditions—a welcome move for persons who maintain multiple residences.
2. Higher Deduction for Partner Remuneration
The limit for deduction of remuneration to partners (in LLPs and partnership firms) has been increased:
| Book Profit | Maximum Deduction Amount |
|---|---|
| Upto Rs. 6,00,000 | Rs. 3,00,000 or 90% of book profit (whichever is higher) |
| Above Rs. 6,00,000 | 60% of book profit |
3. Removal of Equalisation Levy
The 6% equalisation levy on digital advertising by non-residents (on payments above Rs. 1 lakh) has been abolished effective 1st April 2025.
Conclusion
These income tax changes, effective from 1st April 2025, reflect the government’s push towards a simplified, taxpayer-friendly system. Whether you’re a salaried individual, business owner, or investor, understanding these reforms is crucial to optimize your financial planning and compliance for FY 2025-26.
