In February 2025, India’s Finance Minister Nirmala Sitharaman presented the Union Budget for the fiscal year 2025-26, introducing significant reforms to the country’s tax structure. These changes aim to simplify the tax system, reduce litigation, and provide relief to taxpayers. Here’s an overview of the key tax changes and what they mean for you.
Introduction of the New Income Tax Bill 2025
The government has introduced the Income Tax Bill 2025 to replace the six-decade-old Income Tax Act of 1961. This new bill seeks to modernize and simplify tax laws by eliminating obsolete provisions and reducing the total number of sections by 25-30%, making the code more user-friendly. The bill is expected to be effective from April 1, 2026.
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Revised Income Tax Slabs and Rates
The Union Budget 2025 has proposed new income tax slabs under the new tax regime for the financial year 2025-26 (assessment year 2026-27). These changes aim to provide tax relief and simplify compliance for taxpayers.
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The revised income tax slabs are as follows:
| Annual Income (₹) | Tax Rate (%) |
|---|---|
| 0 – 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Additionally, the standard deduction has been increased from ₹50,000 to ₹75,000, providing further relief to salaried individuals.
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Rationalization of TDS and TCS Provisions
To simplify tax compliance, the budget proposes changes to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions:
- Increased TDS Thresholds: The limit for TDS on interest income for senior citizens has been doubled from ₹50,000 to ₹1 lakh. EY US
- Higher TDS on Rent: The annual limit for TDS on rent has been increased from ₹2.4 lakh to ₹6 lakh, benefiting small taxpayers receiving rental income. EY US
- Abolition of TCS on Sale of Goods: Effective April 1, 2025, TCS on the sale of goods is proposed to be abolished, leaving only withholding tax on the purchase of goods, subject to certain conditions. PwC
Introduction of a Unified ‘Tax Year’
The new Income Tax Bill 2025 introduces a standardized ‘tax year,’ replacing the dual financial year (April to March) and assessment year system. This change aims to simplify tax filing and compliance for taxpayers.
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Implications for Taxpayers
These reforms are designed to increase disposable income, encourage consumer spending, and simplify the tax filing process. Taxpayers can expect a more straightforward tax system with reduced compliance burdens. However, it’s essential to stay informed about these changes and consult with tax professionals to understand their full impact on your financial situation.
FAQs
1. When will the new tax slabs come into effect?
The revised tax slabs are proposed for the financial year 2025-26 (assessment year 2026-27) and will be applicable from April 1, 2025.
2. Can taxpayers still choose between the old and new tax regimes?
Yes, taxpayers have the option to choose between the old and new tax regimes based on which is more beneficial for their financial situation.
3. How does the increase in the standard deduction benefit salaried individuals?
The increase in the standard deduction from ₹50,000 to ₹75,000 reduces the taxable income for salaried individuals, leading to lower tax liabilities.
4. What is the purpose of introducing a unified ‘tax year’?
The unified ‘tax year’ aims to simplify the tax filing process by replacing the existing dual system of financial and assessment years, making it more straightforward for taxpayers.
5. How will the abolition of TCS on the sale of goods impact businesses?
The removal of TCS on the sale of goods is expected to reduce the compliance burden on businesses, simplifying tax processes and potentially improving cash flow.