Union Budget 2025: Key Announcements on Income Tax

The Union Budget 2025 has introduced several changes in the income tax regime, aimed at providing relief to taxpayers, enhancing compliance, and streamlining the taxation process. Here are the major announcements related to direct taxes

Here are the major announcements related to direct taxes:

Revised Tax Slab Rates

The government has revised the income tax slab rates, bringing substantial relief to the middle class. The new tax slabs are:

Increase in Income Tax Rebate

• The rebate under the new tax regime has been extended to individuals with an annual income of up to ₹12 lakh. Earlier, only those earning up to ₹7 lakh were eligible for a full tax rebate.
• This means that individuals earning up to ₹12 lakh will not have to pay any income tax, subject to applicable deductions.

Increase in TDS & TCS Thresholds

To ease compliance and reduce tax burdens, the government has raised the threshold limits for Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). Some key changes include:

• Interest on securities: No TDS up to Rs 10,000.
• dividend income: TDS limit increased from Rs 5,000 to Rs 10,000.
• Professional fees: TDS exemption threshold raised from Rs 30,000 to Rs 50,000.
• Rent: Monthly exemption limit set at Rs 50,000.

New Income Tax Bill

• A new Income Tax Bill will be introduced to simplify tax laws, reducing the number of chapters and words in the existing legislation by nearly half.
• The bill aims to provide greater tax certainty, reduce litigation, and make tax compliance easier for individuals and businesses.

Extended Time Limit for Filing Updated ITR

• Taxpayers can now file updated income tax returns (ITR-U) for up to four years instead of the previous two-year limit.
• Additional tax rates for filing updated returns:
  • 60% additional tax for returns filed between 24-36 months.
  • 70% additional tax for returns filed between 36-48 months.

Encouraging Voluntary Compliance

• Crypto transactions will be subject to new reporting norms, with prescribed entities required to furnish details of transactions.
• The annual value of self-occupied property will be treated as nil, reducing tax liabilities for homeowners.
• Prosecution exemptions will be provided for delayed TCS payments if settled before the quarterly filing deadline.

Ease of Doing Business Measures

• Startup Incentives: Section 80-IAC tax benefits extended to startups incorporated before April 1, 2030.
• Capital Gains Parity: Foreign Institutional Investors (FIIs) will have capital gains tax rates aligned with resident taxpayers.
• Simplification for Charitable Trusts: Registration validity extended from 5 to 10 years, with clearer compliance guidelines.
• Business Trust Taxation: Business trusts taxed at maximum marginal rates will now also be subject to Section 112A provisions.

Boost to Employment & Investments

• Incentives for IFSC: Sunset date for various tax exemptions extended to March 31, 2030.
• Tax Benefits for NPS Contributions: NPS Vatsalya contributions will now qualify for Section 80CCD deductions.
• Tonnage Tax for Inland Vessels: The tonnage tax scheme extended to inland vessels to promote waterway transportation.
• Taxation of Unit Linked Insurance Plans (ULIPs): Clarification that gains from non-exempt ULIPs will be taxed as capital gains.

Other Key Announcements

• Exemption for National Savings Scheme (NSS) Withdrawals: Withdrawals made after August 29, 2024, will be tax-exempt.
• Higher Income Limits for Perquisite Taxation: Employee perquisite calculations to be revised to reflect higher income limits.
• Penalty Rationalization: Certain penalties to be imposed by assessing officers with prior approval from tax authorities.
• Extended Time for Startup Investments: Sovereign Wealth Funds and Pension Funds will have until March 31, 2030, to make tax-exempt investments.