The Budget 2025 included significant amendments to the Income Tax Act 1961 in an effort to simplify India’s tax system. These modifications will go into effect on April 1, 2025, and they will apply starting in FY 2025–2026.
All of the significant changes that one needs to be aware of in order to appropriately plan their finances for FY 2025–2026 will be covered in this article.
Read also: Year-End Compliances to be Completed Before 31st March 2025
Top 10 Income Tax Changes Effective from 1st April 2025
Income Tax Slabs for FY 2025-26 (AY 2026-27)
Under section 115BAC, commonly referred to as the New Tax Regime or the Default Tax Regime, the Budget 2025 proposes new tax slab rates. This was done to make sure people could save more money and have more money to spend. From FY 2025–2026 onwards, income earned will be subject to these revised tax slab rates.
The following are the updated slab rates for FY 2025–2026:
|
Income Tax Slabs |
Income Tax Rates |
|
Upto Rs.4 lakh |
NIL |
|
Rs. 4 lakh – Rs.8 lakh |
5% |
|
Rs.8 lakh – Rs.12 lakh |
10% |
|
Rs.12 lakh – Rs.16 lakh |
15% |
|
Rs.16 lakh – Rs.20 lakh |
20% |
|
Rs.20 lakh – Rs.24 lakh |
25% |
| Above Rs.24 lakh |
30% |
Reminder: The Old Tax Regime (Optional Regime) income tax slab rates have not changed.
Read also: TCS Rates Under Income Tax for FY 2025-26
Section 87A Rebate Increased Key Update for Taxpayers
For taxpayers filing tax returns under the New Tax Regime, the rebate under section 87A was raised from Rs. 25,000 to Rs. 60,000. Up to Rs. 12 lakhs in tax-free income is now available to the taxpayer.
Accordingly, under the new tax system, people making up to Rs. 12 lakh will not be required to pay any taxes.
Key Changes in Tax Deduction at Source (TDS) Provisions
The TDS threshold limits for the following sections were raised with effect from April 2025:
|
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 |
Reminder: Other TDS-related sections’ provisions are unchanged.
Read also: Key Changes in Form 16, Form 24Q, and Surcharge Rates
Key Changes in Tax Collected At Source (TCS) Provisions
The following TCS changes will take effect in 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) |
Reminder: Other TCS-related sections’ provisions are unchanged.
Read also: Depreciation Rates For Financial Year 2025-26 (AY 2026-27)
ITR-U: Updated Return Filing
The 12-month deadline for submitting an Updated Tax Return was extended to 48 months (4 years) from the conclusion of the applicable assessment year. Depending on when an updated return is filed, the increased tax liability 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) |
Read also: House Rent Allowance (HRA): Tax Benefits, Eligibility & Claim Process
Tax Benefits Available to IFSC Units
- The sunset dates for the initiation of operations of IFSC units for tax advantages have been extended to 31 March 2030.
- There is no maximum premium amount and section 10(10D) totally exempts the premium paid by non-residents on a life insurance policy obtained from an IFSC office.
Income Tax Exemptions Available to Start-ups
Startups that were incorporated on or before April 1, 2030, are eligible to deduct 100% of their profits and gains for three of the ten years after the year of incorporation under Section 80-IAC, subject to specific requirements.
Withdrawal of Sections 206AB and 206CCA
To decrease the cost of compliance on tax deductors and collectors, Sections 206AB and 206CCA of the Income Tax Act 1961 will be eliminated as of April 2025.
Deduction On Remuneration Paid To Partners
The maximum deduction for partners compensation paid will be determined by the following limitations:
|
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 |
Read also: New Income Tax Bill 2025: Simplified Taxation, Reduced Litigation, and Economic Impact
Taxation of ULIPs: Treated as Capital Gains
Premiums paid by ULPIs that surpass 10% of the insured amount, or Rs. 2.5 lakhs per year, shall be regarded as capital gains and subject to the appropriate taxation.
Changes in Tax Treatment of Deemed Let-Out Properties
Previously, if the owner is unable to occupy the property because of work, business, or professional obligations at another location, the annual value of up to two self-occupied properties was considered to be NIL. It is now suggested that if the owner uses the home for his personal living or is unable to do so for whatever reason, the yearly value of up to two house properties should be zero.
By permitting people to claim up to two home properties as self-occupied and declare NIL income on such properties without any restrictions, the Finance Bill 2025 loosened the requirements for determining what is a let-out property.
Read also: “Income Tax” Slightly Over ₹12 Lakh Salary? Do You Pay Full Tax?
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