Income Tax Changes from April 1, 2025- Everyone Must Know!

[Tushar Makkar]

Big changes are coming to income tax rules in India, introduced by The Union Budget 2025. It aims to ease the tax system's understanding and to give more benefit to the taxpayers. These new rules will affect different parts of the Income Tax Act of 1961. CA students, CA articles, and every other individual should know about these changes to be able to manage their finances. By knowing what is coming, you can plan better and make the most of the new benefits available.

1. Revised Income Tax Slabs for FY 2025-26 (AY 2026-27)

The government has updated the income tax slabs under the new tax regime to offer financial relief to taxpayers. These revised tax slabs will apply from FY 2025-26 onwards:

Income	Tax Rate
Up to ₹4 lakh	NIL
₹4 lakh to ₹8 lakh	5%
₹8 lakh to ₹12 lakh	10%
₹12 lakh to ₹16 lakh	15%
₹16 lakh to ₹20 lakh	20%
₹20 lakh to ₹24 lakh	25%
Above ₹24 lakh	30%

Thanks to an increased rebate under Section 87A, individuals earning up to ₹12  lakh per year won't have to pay any income tax under the new system

2. Increased Rebate Under Section 87A

Under the new tax regime tax rebate under Section 87A has been raised from ₹25,000 to ₹60,000 for taxpayers. Individuals earning up to ₹12 lakh annually will be completely exempt from income tax under the new regime. 

People opting for the old tax regime: The rebate limit remains unchanged at ₹12,500.

3. Tax Deduction at Source (TDS) Changes

Effective from April 2025, the threshold limits for TDS on various income categories have been increased. Some key updates are shown in the table below:

Section	Before 1st April 2025	From 1st April 2025
193 - Interest on securities	NIL	₹10,000
194A - Interest other than Interest on securities	₹50,000 for senior citizens; ₹40,000 for others	₹1,00,000 for senior citizens; ₹50,000 for others
194 - Dividend (individual shareholder)	₹5,000	₹10,000
194I - Rent	₹2.4 lakh per year	₹50,000 per month
194H - Commission or brokerage	₹15,000	₹20,000
194J - Fee for professional or technical services	₹30,000	₹50,000
194LA - Income by way of enhanced compensation	₹2.5 lakh	₹5 lakh
194T - Remuneration, Interest, and Commission paid to partners	NIL	₹20,000

These changes are designed to reduce compliance burdens and increase tax efficiency.

4. Tax Collected at Source (TCS) Changes

There are also changes to TCS provisions starting from April 2025. Some key updates are:

Section	Before 1st April 2025	From 1st April 2025
206C(1G) - Remittance under LRS & Overseas Tour Program	₹7 lakh	₹10 lakh
206C(1G) - Remittance under LRS for education (financed by educational loans)	₹7 lakh	Nil (No TCS)
206C(1H) - Purchase of Goods	₹50 lakh	Nil (No TCS)

5. Updated Tax Return: ITR-U

The deadline for filing an updated tax return (ITR-U) has been extended from 12 months to 48 months (4 years). This provides taxpayers more time to correct any omissions in their original returns and settle additional tax liabilities. The additional tax liability will depend on the timeline of filing the updated return, as shown below:

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)

6. Benefits for IFSC (International Financial Services Centre)

To promote India as a global financial hub, tax concessions for operations in IFSC units have been extended until March 31, 2030. Additionally, life insurance premiums paid by non-residents for policies purchased from IFSC offices are exempt from tax under Section 10(10D), with no maximum premium limit.

7. Tax Exemption for Start-ups

100% tax deduction on profits for 3 consecutive years out of 10 years from the year of incorporation to- Start-ups incorporated before April 1, 2030. 

This aims to encourage innovation and entrepreneurship in India.

8. Omission of Sections 206AB and 206CCA

Sections 206AB and 206CCA to be omitted from the Income Tax Act. 

The removal of these sections is expected to reduce delays and improve efficiency as it previously required tax deductors and collectors to determine whether the recipient had filed their tax returns

9. Deduction on Remuneration Paid to Partners

Partnership firms and LLPs will benefit from increased deductions for remuneration paid to partners. The deduction limits have been revised to allow higher deductions in the tax computation process, as outlined below:

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

10. Treatment of ULIPs as Capital Gains

The government has updated the tax rules for unit-linked insurance Plans (ULIPs). If the yearly premium paid for these ULIPs is more than ₹2.5 lakh, the money you earn from them will now be treated as capital gains. This means they will be taxed according to the capital gains tax rates.

11. Relaxation of Deemed Let-Out Property Provision

The Finance Bill 2025 has relaxed rules for people owning more than one house. Now, you can declare up to two houses as self-occupied. 

This is advantageous for individuals unable to live in their second homes due to their work as they won't have to report any income from these properties.

Conclusion

The changes mentioned above will significantly impact tax planning for both businesses and individuals. It's very important for CA students, CA articles, and every other individual to closely review these new tax provisions and adjust their financial plans to take full advantage of the potential benefits. Consulting with tax experts is recommended!