Changes in Indian Taxation: Budget 2025-2026

 

Changes in Indian Taxation: Budget 2025-2026

The Indian financial landscape is always changing, Finance Minister Nirmala Sitharaman presented the Union Budget 2025 on February 1, 2025. This budget aims to boost India’s economy by focusing on growth that includes everyone, especially the poor, youth, farmers, and women. These changes, introduced in the Union Budget, aim to streamline the tax system, promote economic growth, and provide relief to taxpayers. Let’s look at the main points and highlights of Budget 2025.

The government India allows people to file ITR under two different Tax regimes:

• Old Tax Regime: Higher rates, many deductions/exemptions (like 80C, HRA), age-based exemption limits, standard deduction ₹50k, rebate up to ₹12.5k (income ≤ ₹5 lakh). This regime is beneficial if a person can claim many deductions under specified sections.
• New Tax Regime: Lower rates, very limited deductions, uniform exemption limit, higher standard deduction ₹75k, higher rebate. Simpler, often better for those with fewer deductions. The new regime is the default option when filing.

Taxation in India Effective for Financial Year 2025-2026

The 2025 budget introduced a more simplified personal income tax regime. Personal Income Tax reforms with special focus on the middle class.

Changes in Slab Rates

New Tax Regime

Income Level	Tax Rates
Rs. 0-4 Lakhs	NIL
Rs. 4-8 Lakhs	5%
Rs. 8-12 Lakhs	10%
Rs. 12- 16 Lakhs	15%
Rs. 16-20 Lakhs	20%
Rs. 20- 24 Lakhs	25%
Above Rs. 24 Lakhs	30%

Old Tax Regime

No Further changes have been made with respect to the old regime for financial year 2025-2026.

Income Level	Tax Rates
Up to Rs. 2.5 Lakhs	NIL
Rs. 2.5- 5 Lakhs	5%
Rs. 5- 10 Lakhs	20%
Above Rs. 10 Lakhs	30%

• For senior citizen (60 years to 80 years) Income up to 3 Lakhs is tax free
• For Super senior citizens ( above 80 years) Income up to 5 Lakhs is Tax- Free

Surcharge Rates

When the total income goes above certain limits, the government adds an extra charge on the income tax. This extra charge is known as a surcharge.

Income Level	Rates of Surcharge
Rs. 50 Lakhs to Rs. 1 Crores	10%
Rs 1 Crores to Rs. 2 Crores	15%
Rs. 2 Crores to Rs. 5 Crores	25%
Above Rs. 5 Crores	37%

The extra surcharge of 25% or 37% doesn’t apply to dividend income or income taxed under sections 111A, 112, 112A, and 115AD(1)(b). So, the highest surcharge rate on tax for these incomes will be 15%.

Standard Deduction

To provide relief to salaried employees, the standard deduction amount is set by the Government so that the taxable income is reduced by a fixed amount, reducing the tax liability of the person.

• New Tax Regime: 75,000
• Old Tax Regime: 50,000

 

Rebate u/s 87A

Tax Rebate is basically a refund on taxes. It is provided generally to the lower income level bracket people so that they are not burdened with the income tax.

Rebate of Rs. 60,000 is not applicable for income at special rates. Marginal relief on rebate is still applicable.

TDS thresholds

Tax Deducted at Source, or TDS, is an important way for the government to collect revenue. TDS is taken right when the income is earned.

TDS Under various Sections

Section	TDS threshold limits
193- Interest on securities	Rs. 10,000
194A- Interest other than interest on securities	When payer is bank, cooperative society or post office: (i) Rs. 1 lakh for senior citizen (ii) Rs. 50,000 for non-senior citizenIn case the payer is others: Rs. 10,000
194- Dividends, for an individual Shareholder	Rs. 10,000
194K Income in respect of units of Mutual Funds	Rs. 10,000
194B- Winning from lottery, crossword puzzles etc.	Rs. 10,000 in respect of a single transaction
194BB- Winnings from horse race	Rs. 10,000 in respect of a single transaction
194D- Insurance commission	Rs. 20,000
194G- Income by way of commission, prize etc. on lottery tickets	Rs. 20,000
194H – Commission or brokerage	Rs. 20,000
194-I – Rent	Rs. 50,000 (in a month) or Rs. 6 Lakhs annually
194J – Fee for professional or technical services	Rs. 50,000
194LA – Income by way of enhanced compensation	Rs. 5,00,000

Time Limit for Filing Tax Return

The time limit for filing ITR is extended by the government to encourage the tax payers to disclose any previously undisclosed taxes and pay the relevant taxes they are obliged to pay. The time limit has been extended to 4 years from the previously given 2 years.

Additional liability based on time line

If the ITR- U is filed within	Additional Tax
12 Months from the end of relevant AY	25% of additional tax (Tax + Interest)
24 Months from the end of relevant AY	50% of additional tax (Tax + Interest)
36 Months from the end of relevant AY	60% of additional tax (Tax + Interest)
48 Months from the end of relevant AY	70% of additional tax (Tax + Interest)

 

Deductions when contribution made to NPS

NPS, or National Pension System, is a government-backed pension plan for everyone, whether you’re in a job or working for yourself. It has two main perks: you can save on taxes while you’re working, and once you retire, you’ll get a steady income.

Benefits of IFSC

The deadline for starting operations of IFSC units to qualify for tax breaks has been pushed back to March 31, 2030.

If you’re a non-resident and you take out a life insurance policy from an office in the IFSC, the premium paid is completely tax-free under section 10(10D), with no cap on the amount.

Tax Exemption For Start ups

According to Section 80-IAC, start-ups that are set up before April 1, 2030, can get a full deduction on their profits for three years in a ten-year period after they’re incorporated, as long as they meet specific requirements.

Omission Of Section 206AB and 206CCA

From April 2025, Sections 206AB and 206CCA of the Income Tax Act 1961 will be removed to help ease the workload of tax diductors and collectors.

Before this change, they had to check if the recipient had filed their tax returns to figure out the right withholding tax. This often slowed down the TDS and TCS return process, leading to higher tax rates, tied-up funds, and more compliance issues. 

Remuneration paid to partners

Partnership firms and LLPs can now deduct more of the money they pay to their partners.

Maximum deduction available for partners remuneration paid

Book Profit	Limit
On first Rs. 6,00,000 of book profit or less	Rs. 3,00,000 or 90% of the book profit, whichever is higher
On the remaining balance of the book profit	60% of the book profit

Treatment of ULIPs as Capital gains

Unit Linked Insurance Policy (ULIPs) , is a financial product that mixes insurance and investment. It’s designed to make insurance a bit more appealing by offering a better return. With a ULIP, part of the premium goes towards life insurance, while most of it is invested in the stock market.

If the premium on ULIP goes over 10% of the total amount insured or more than Rs. 2.5 Lakhs a year, the money made from it will be taxed as capital gains (20% for short-term gains and 12.5% for long-term gains).

But if the premium is under Rs. 2.5 lakhs or 10% of the sum assured, taxpayer can benefit from the tax exemption under section 10(10D) for ULIP payouts.

Removal Of Equalisation Levy

The Equalisation Levy started in India in 2016 to tax digital transactions, specifically the income that foreign e-commerce companies make from Indian customers. It also includes money made from advertising, with a focus on taxing business-to-business transactions.

Starting April 1, 2025, the 6% tax on digital ads paid to foreign service providers will no longer be in place for payments over Rs. 1 lakh.

Deemed Let-Out Property Provision

Before, if a homeowner couldn’t live in one or two of their properties because of work or business in another place, those properties were valued at NIL. Now, there’s a proposal that if the owner lives in the house or can’t live there for any reason, the value will also be NIL.

The Finance Bill 2025 makes it easier for people to classify up to two properties as self-occupied, so they can declare NIL income on them without having to meet any conditions.

 

 

Other changes

• Tax certainty for electronics manufacturing Scheme
• Tonnage Tax Scheme for Inland Vessels

Conclusion

The Union Budget 2025 rolled out some big changes to how taxes work in India. The government wants to make the tax system easier and help everyone grow together. They’re focusing on giving a break to individual taxpayers, especially those in the middle class, while trying to kickstart the economy.

Some key updates are changes to the personal income tax rules, including a new tax option with lower rates and a bigger standard deduction. There are also updates on TDS limits, more time to file your income tax return, and adjustments to how ULIPs and rented properties are taxed. These changes could impact taxpayers, businesses, and the economy in a big way. The simpler tax rules aim to make things clearer and ease some of the burdens, but it’s important for individuals and companies to look at their choices carefully and make smart decisions.

For more details about the budget and its policies, check out the official India Union Budget 2025 documents.