10 Important changes in Union Budget 2025  – Simplified – Direct taxes

In the Union Budget 2025, significant changes in direct taxes have been introduced to streamline fiscal policies. Firstly, a new Income Tax Bill will soon be tabled, promising reform. Secondly, revised income tax slab rates for Assessment Year 2025-26 under Section 115BAC propose progressive taxation, ranging from nil tax for income up to Rs. 4,00,000 to 30% for income above Rs. 24,00,000. Thirdly, enhancements to Section 87A rebates increase the income threshold to Rs. 12,00,000, benefiting individual taxpayers. Additionally, the classification criteria for MSMEs have been revamped, with increased investment and turnover limits across micro, small, and medium enterprises. Moreover, the registration period for smaller trusts and institutions has been extended from 5 to 10 years, easing compliance. Furthermore, TDS thresholds have been rationalized, affecting various categories such as interest, dividends, and professional fees. Notably, the removal of higher TDS/TCS rates for non-filers aims to simplify tax compliance. Lastly, provisions allowing the annual value of self-occupied properties as nil have been extended to two properties, simplifying calculations. The time limit for filing updated returns has also been extended to 48 months, promoting voluntary compliance. These changes reflect a concerted effort to enhance tax efficiency and ease of compliance for taxpayers across sectors. Some of important changes introduced in Union Budget 2025 as follows-

1. New Income Tax Bill to be introduced by the Government next week.

2. Significant changes in Income tax slab rates for AY 2025-26-

Tax rates under section 115BAC—

Individual, HUF, association of persons, body of individuals, artificial juridical person-

With effect from assessment year 2026-27, it is proposed that the following rates provided under the proposed clause (iii) of sub-section (1A) of section 115BAC of the Act shall be the rates applicable for determining the income-tax payable in respect of the total income of a person, being an individual or Hindu undivided family or association of persons [other than a co-operative society], or body of individuals, whether incorporated or not, or an artificial juridical person referred to in subclause (vii) of clause (31) of section 2:

3. Rebate under Section 87A-

From assessment year 2026-27 onwards, for an assessee, being an individual resident in India whose income is chargeable to tax under the sub-section (1A) of section 115BAC, it is proposed to,–

• Enhance the limit of total income for rebate in clause (a) and (b) of first proviso under section 87A, on which the income-tax is payable as per the rates of income-tax under sub-section (1A) of section 115BAC, from Rs. 7,00,000/- to Rs. 12,00,000/- and the limit of rebate in clause (a) of first proviso to section 87A from Rs. 25,000/- to Rs. 60,000/
• Such rebate of income-tax is not available on tax on incomes chargeable at special rates.

4. Revision in classification criteria for MSME- The investment and turnover limits for classification of all MSMEs to be enhanced to 2.5 and 2 times respectively. 

5. Period of registration of smaller trusts or institutions –

To reduce the compliance burden for the smaller trusts or institutions, it is proposed to increase the period of validity of registration of trust or institution from 5 years to 10 years, in cases where the trust or institution made an application under sub-clause (i) to (v) of the clause (ac) of sub-section (1) of section 12A, and the total income of such trust or institution, without giving effect to the provisions of sections 11 and 12, does not exceed Rs. 5 crores during each of the two previous year, preceding to the previous year in which such application is made  .  Effective from 01.04.2025-

6. TDS threshold rationalization-

TDS provisions have various thresholds of amount of payment or amount of income, beyond which tax is required be deducted. It is proposed to rationalize these thresholds as below – 

7. Reduction in compliance burden by omission of TCS on sale of specified goods-

To facilitate ease of doing business and reduce compliance burden on the taxpayers, it is proposed that provisions of sub-section (1H) of section 206C of the Act will not be applicable from the 1st day of April, 2025.

8. Removal of higher TDS/TCS for non-filers of return of income-

Section 206AB of the Act, requires deduction of tax at higher rate when the deductee specified therein is a non-filer of income-tax return. Section 206CCA of the Act, requires for collection of tax at 41 higher rate when the collectee specified therein is a non-filer of income-tax return. To reduce compliance burden for the deductor/collector, it is proposed to omit section 206AB of the Act and section 206CCA of the Act. Effective from 01.04.2025

9. Annual value of the self-occupied property simplified–

• The benefit of claiming the annual value of self-occupied properties as nil will be extended for two such self-occupied properties without any condition.

10. Extending the time-limit to file the updated return-

Existing provisions-

As per the present provisions, an updated return can be filed up to 24 months from the end of the relevant assessment year. The facility of updated return has promoted voluntary compliance against payment of additional income-tax of 25% of aggregate of tax and interest payable for updated return filed up to 12 months from the end of the relevant assessment year. For updated return filed after expiry of 12 months and up to 24 months from the end of the relevant assessment year, the additional income-tax of 50% of aggregate of tax and interest is to be paid.

Proposed amendment-

It is proposed to amend the said subsection so as to extend the time-limit to file the updated return from existing 24 months to 48 months from the end of relevant assessment year. Rate of additional income-tax payable for updated return filed after expiry of 24 months and up to 36 months from the end of the relevant assessment year shall be 60% of aggregate of tax and interest payable. The additional income-tax payable for updated return filed after expiry of 36 months and up to 48 months from the end of the relevant assessment year shall be 70% of aggregate of tax and interest payable.

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