Budget 2025-Changes in Income Tax

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman on February 1, focuses on setting a new course for India's economic growth, with an emphasis on inclusivity. It aims to empower the poor, youth, farmers, and women while promoting sustainable development through taxation, infrastructure, agriculture, and digitalization reforms. This budget introduces significant measures across these sectors to strengthen long-term growth. 

Let’s understand the key changes in Income Tax declared in this budget!

Income Tax slabs for the new regime:

Income Tax slab rates for AY 2026-27 are changed for new tax regime u/s 115BAC as follows:

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87A rebate limit increased:

For the new tax regime u/s 115BAC, the threshold limit for claiming 87A rebate is increased from Rs. 7,00,000 to Rs.12,00,000 for AY 2026-27. However, the rebate can be claimed only against normal-rate income. The rebate is not available on income chargeable to special rates such as capital gains. The rebate available is Rs.60,000 or 100% of the normal rate tax, whichever is lower. Marginal relief is available for income slightly above ₹12 lakh. The slab rates and 87A rebate changes benefit the taxpayers as follows:

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Changes in TDS rates FY 2025-26:

Following are the changes in TDS rates and thresholds for FY 2025-26 i.e. AY 2026-27:

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The time limit for Updated Returns:

The time limit for filing Updated Returns u/s 139(8A) is increased from 2 assessment years to 4 assessment years. However, if any person has received notice to show cause under section 148A, this time limit is 3 assessment years. The additional tax payments u/s 140B are revised as under:

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Conditions for claiming house property as “Self-occupied” relaxed:

Sub-section (2) of said section provides that where house property is in the occupation of the owner for his residence or the owner cannot occupy it due to his employment, business or profession carried on at any other place, in such cases, the annual value of such house or part of the house shall be taken to be nil. Further, sub-section (4) of the said section provides that provisions of sub-section (2) of the Act will be applicable in respect of 2 houses only. It is proposed to substitute the sub-section (2) of the said section to provide that the annual value of the property consisting of a house or any part thereof shall be taken as nil, if the owner occupies it for his residence or cannot occupy it due to any reason. This amendment will take effect from 1st April 2025 and shall apply to the assessment the year 2025-26 onwards.

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Exemption to NSS withdrawals:

It is proposed to exempt withdrawals made from NSS by senior citizens on or after the 29th of August, 2024. Similar treatment to NPS Vatsalya accounts as is available to normal NPS accounts, subject to overall limits.

Other changes:

• It is proposed to provide a presumptive taxation regime for non-residents who provide services to a resident company that is establishing or operating an electronics manufacturing facility. It is further proposed to introduce a safe harbor for tax certainty for non-residents who store components for supply to specified electronics manufacturing units.
• Presently the tonnage tax scheme is available to only sea-going ships. The benefits of the existing tonnage tax scheme are proposed to be extended to inland vessels registered under the Indian Vessels Act, 2021 to promote inland water transport in the country.
• It is proposed to extend the period of incorporation by 5 years to allow the benefit available to start-ups that are incorporated before 1.4.2030.
• Specific benefits to ship-leasing units, insurance offices, and treasury centers of global companies that are set up in IFSC. Further, to claim benefits, the cut-off date for commencement in IFSC has also been extended by five years to 31.3.2030.
• Category I and Category II AIFs are undertaking investments in infrastructure and other such sectors. It is proposed to provide certainty of taxation to these entities on the gains from securities.
• To promote funding from Sovereign Wealth Funds and Pension Funds to the infrastructure sector, it is proposed to extend the date of investing by five more years, to 31st March 2030.
• It is proposed to reduce the compliance burden for small charitable trusts/institutions by increasing their period of registration from 5 years to 10 years. It is also proposed that disproportionate consequences do not arise for minor defaults, such as incomplete applications filed by charitable entities.
• Section 206AB for higher TDS in case of non-filers is proposed to be omitted. The provisions of the higher TDS deduction will now apply only in non-PAN cases.

Conclusion:

In conclusion, the Union Budget 2025 introduces key changes in the income tax regime, offering tax relief through revised slabs, higher rebate limits, and TDS adjustments. The extended filing timelines and relaxed conditions for house property further ease compliance. These measures, aimed at supporting taxpayers and key sectors, reflect the government’s commitment to sustainable growth and economic inclusivity.