Budget 2025: Analysis of proposed amendments in Income Tax & GST

The Budget 2025 introduced important reforms to both Income Tax and GST, focusing on providing tax relief, simplifying procedures, and supporting economic growth. For Income Tax, the new tax regime offers significant relief for middle-income earners by revising tax slabs, particularly benefiting individuals with income up to ₹12 lakh. However, the old tax regime remains unchanged, and new provisions limit the rebate under Section 87A, particularly affecting taxpayers under Section 115BAC. Business entities, both domestic and foreign, will also experience marginal shifts in tax rates. Additionally, the Budget proposes changes to the classification of MSMEs by increasing the investment and turnover limits for micro, small, and medium enterprises. On the GST front, the government expanded exemptions and introduced procedural revisions, including an increase in the TDS thresholds for interest, rent, and professional charges. The scrapping of TCS on sales exceeding ₹50 lakh for businesses aims to address confusion created by overlapping TDS provisions. Other notable changes include an increase in the LRS remittance limit for TCS from ₹7 lakh to ₹10 lakh, as well as the introduction of tax exemptions for withdrawals from the National Savings Scheme (NSS) starting in August 2024.

In terms of GST-specific amendments, Budget 2025 also focused on pre-deposit amounts for GST appeals, reducing penalties for E-way bill violations and introducing a 10% penalty for other infractions. The new requirement for unique identification marking applies to certain goods and persons, who must affix a mark and submit separate returns. Additionally, the amendment nullifies the Safari Retreats judgment, preventing ITC claims for the construction of immovable properties like malls from 1st July 2017. The Invoice Management System (IMS) now requires the recipient’s adjustment of input tax credit before reducing the credit note liability. Alongside these GST changes, the Budget emphasizes large-scale reforms across various sectors. For startups, MSMEs, and farmers, the Budget proposes increased funding and new schemes to boost growth and sustainability. Infrastructure development is significantly prioritized, with a focus on education, healthcare, and social inclusion, including a major push for nuclear energy development, aiming for 100 GW by 2047. These wide-ranging reforms are designed to foster economic growth, create jobs, and ensure a more sustainable and inclusive future for India.

Budget 2025: complete analysis of proposed changes and amendments

A. Direct Tax Related Changes

Tax Rate for Assessment Year 2026-27 and Financial Year 2025-26

Individuals

• New Regime (Revised Slabs)
  • Income up to ₹4,00,000 – No tax
  • ₹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%
• Old Regime
  • Income up to ₹2,50,000 – No tax
  • ₹2,50,001 – ₹5,00,000 – 5%
  • ₹5,00,001 – ₹10,00,000 – 20%
  • Above ₹10,00,000 – 30%

In old regime there are no changes

Business Entities

• Partnership Firm – 30% on all income
• Domestic Companies
  • Turnover < ₹400 crore in FY 2023-24: 25%
  • Other Domestic Companies: 30%
• Foreign Companies: 35%

No Income tax Payable for Income Up-to Rs.12 Lakhs in 2025-26

It had the maximum financial impact on all individuals has been made in the Budget 2025, promoting them to apply for new scheme.

The Income tax payable for income up-to Rs. 12 Lakhs under new regime will be nil, considering standard deduction on salaried it will be Rs 12 lakhs plus 75,000 i.e. Rs. 12,75,000

The above table shows that there is substantial tax relief for income earners in all tax brackets and in all categories

However, this benefit of reduced tax rates and rebate is given only in the new tax regime and not for old tax Regime

87A Rebate for Special rate income

• A new proviso has been added.
• It is now explicitly stated that the 87A rebate applies only to income taxed at normal rates and not on special rates
• The Bombay High Court ruling in case of Chamber of Tax Consultants through its President Mr. Vijay Bhatt Vs Director General of Income Tax (systems) (Bombay High Court) Public Interest Litigation (L) No. 32465 of 2024 have been overruled

The rebate cannot exceed the tax calculated under the new tax regime (Section 115BAC) rates

Example: If the tax payable under Section 115BAC(1A) is ₹50,000 (due to lower taxable income or deductions), then the rebate under Section 87A will be limited to ₹50,000, not ₹60,000.

 New Income Tax Bill to be Introduced

The hon’ble Finance Minister has indicated that a new Income Tax Bill Will be introduced in the parliament by second week of February 2025

The existing Income Tax Act, 1961 will undergo considerable simplification and will probably be replaced by the new act in coming days

 Revision in MSME Classification Criteria

In the Budget Speech the Hon’ble Finance Minister has stated as follows, “The investment and turnover limits for classification of all MSMEs will be enhanced to 2.5 and 2 times respectively”

The existing criteria for MSME

Classification and the revised classification are as follows:

However, Now most of the creditors may fall under Micro and Small Category and the payments should be made to them within 15 days to claim the same as expense as per Section 43B(h) of the Income tax Act,1961

On other hand it will give MSME confidence to grow and create jobs for youth

TDS Related Changes

The threshold limit various types of Incomes have been modified for the financial year 2025-26

No more higher rate of TDS for non filing of return by others

The most troublesome section 206AB was introduced with effect from 01st July 2021 to state that when a person deducts TDS for a deductee and the deductee has not filed Income tax return for the last two years and the total of tax collected and tax deducted is more than Rs.50,000 in those years

Then the TDS deducted as follows

The higher of below rates:

• 5% of the amount
• 2X the rate mentioned in the provision
• The currently applicable rate

This was logically flawed as it imposed a burden on the deductor for no flaw or lapse on their part

This section mandating higher TDS deduction for non compliance on part of others is now removed. However higher rate of TDS in case if the deductee has not linked his PAN and Aadhar is still applicable.

TCS Related Changes

 Reduction in TCS rate for Timbers

The rate of TCS for Timbers at present is 2.5%.

For the financial year 2025-26 the Rate of TCS will be 2%.

TCS on sale of Goods under section 206C(1H) is scrapped

The TCS charged under section 206C(1H) was introduced with effect from 01st October 2020.

This section had made it mandatory for:

• Sellers whose turnover in the previous financial year exceeds Rs.10 crores
• To collect tax at 0.1% on amount received as consideration for sales
• Once the sale consideration exceeds Rs.50 Lakhs in a financial year

This section is scrapped with effect from 31st March 2025. For the financial year 2025-26 the sellers need not collect tax at source on sales under section 206C(1H).

Reason: there is a similar TDS section under 194Q which required buyers to deduct Tax at source at the rate of 0.1%, hence it created confusion amongst taxpayers.

Increase in TCS Threshold for LRS Remittances: ₹7 Lakh to ₹10 Lakh

Current Scenario

• Under Section 206C(1G) of the Income Tax Act, remittances made under the Liberalized Remittance Scheme (LRS) are subject to Tax Collected at Source.
• The existing threshold for TCS applicability is ₹7 lakh per financial year per individual.
• If total remittances exceed ₹7 lakh, the applicable TCS rates are:
  • 0.5% – If the remittance is for education and financed through an education loan.
  • 5% – For education and medical purposes without a loan.
  • 20% – For other purposes like investments, gifts, and foreign travel (recently reduced from 20% to 5% for certain transactions).

Proposed Change (Effective from FY 2025-26)

• The TCS threshold for LRS remittances is increased from ₹7 lakh to ₹10 lakh per financial year.
• This means that no TCS will be applicable on remittances up to ₹10 lakh.

The Updated Returns

From 01st April 2022 the government gave an option to file Updated returns. The updated return can be filed only with payment of additional tax and for up-to 2 years from end of an assessment year.

The provisions for filing Updated return is amended by providing extra two years as follows

So, for the financial year 2025-26 Belated return can be filed till 31st December 2026 and updated return along with additional tax can be filed till 31st March 2030

Restriction on Filing if tax authorities are investigating:

If the Income Tax Department has issued a show-cause notice under Section 148A (before reassessing escaped income), then the taxpayer cannot file an updated return after 36 months from the end of the relevant assessment year.

Exception to the Restriction:

If, after investigation, the tax officer determines (under Section 148A(3)) that there is no valid reason to reassess the taxpayer, then the restriction does not apply, and an updated return can still be filed.

Withdrawals from the National Savings Scheme (NSS) for individuals

The proposal to provide tax exemption on withdrawals from the National Savings Scheme (NSS) for individuals on or after 29th August 2024 is a significant relief for taxpayers.

Here is a detailed explanation of its implications:

Current Tax Treatment of National Savings Scheme (NSS) Withdrawals

• Taxability: Under the existing provisions, withdrawals from NSS are generally taxable under the head “Income from Other Sources” unless specific exemptions apply.
• TDS Deduction: Certain withdrawals may attract Tax Deducted at Source (TDS) if they exceed prescribed thresholds.
• No EEE Status: Unlike PPF or EPF, NSS does not currently enjoy the Exempt-Exempt-Exempt (EEE) status.

Proposed Change (Effective from 29th August 2024)

• Withdrawals made on or after 29th August 2024 will be exempt from tax for individuals.
• This means that the withdrawn amount will not be considered as taxable income and will not attract any TDS or additional tax liability.
• The move aims to enhance liquidity for investors and promote savings.

Taxpayers Can Claim “Nil Annual Value” for two self-occupied properties without any condition

 Current Tax Treatment

• Under Section 23(2) of the Income Tax Act, if a taxpayer owns more than one self-occupied property, only one property can be treated as self-occupied with “Nil Annual Value”.
• The second self-occupied property is deemed to be let out, and the taxpayer must declare a notional rent (market rent), which is then taxed as Income from House Property after applicable deductions.

Proposed Change (Effective from AY 2026-27)

• Taxpayers will now be allowed to claim “Nil Annual Value” for up to two self-occupied properties.
• This means no deemed rental income will be charged on the second self-occupied house.
• No conditions will be imposed, such as proving family dependency or maintaining separate residences for employment.

Illustration of Tax Savings

Before the Proposal

• If a taxpayer owns two self-occupied houses, the second one is deemed let out, and notional rent (say ₹3 lakh annually) is added to taxable income.
• After claiming 30% standard deduction, the taxable notional income is ₹2.1 lakh, which attracts tax based on slab rates.

After the Proposal

• Both properties will have Nil Annual Value, meaning no deemed rental income is added to taxable income.
• This results in tax savings ranging from ₹10,000 to ₹63,000, depending on the taxpayer’s slab rate (5% to 30%).

Extension of Registration Period for Small Charitable Trusts & Institutions from 5 Years to 10 Years

Current Scenario (Before the Proposal)

• Under Section 12AB of the Income Tax Act, charitable trusts and institutions seeking tax exemption must renew their registration every 5 years.
• This involves submitting detailed documentation, compliance with regulatory conditions, and scrutiny by tax authorities.
• Frequent renewal increases the administrative and compliance burden, especially for small charitable organizations with limited resources.

Proposed Change

• The registration period for small charitable trusts and institutions will be extended from 5 years to 10 years.
• This means that once registered, an eligible trust will not need to reapply for renewal for a decade.
• Here small charitable trust means, trusts whose the total income, without giving effect to the provisions of sections 11 and 12, does not exceed rupees five crores during each of the two previous years

Special provision for computing profits and gains of non-residents engaged in business of providing services or technology for setting up an electronics manufacturing facility or in connection with manufacturing or producing electronic goods, article or thing in India

Section 44BBD introduces a presumptive taxation scheme for non-residents providing services or technology to eligible Indian electronics manufacturers, deeming 25% of specified receipts as taxable business income.

This applies only to companies under a government-notified scheme meeting prescribed conditions.

Taxable on amount basis as it includes all payments received or receivable by the non-resident for providing services or technology in India.

No set-off allowed in case non-residents opting for this scheme cannot claim set-off for unabsorbed depreciation or carried-forward business losses.

B. Changes in GST

Pre-Deposit for penalty only orders

The Pre deposit for GST Appeals before and after amendment is as follows

Introduction of unique identification marking

The concept of unique identification marking has been introduced

The Government may on recommendation of the GST Council specify:

• certain Goods or
• certain Person

for whom this may apply

Once it is specified the person will have to:

• Affix the marking on the goods supplied and
• Furnish separate returns to government in this regard
• Furnish details of machinery installed

In short for the person dealing in such goods, it will involve additional compliances and cost once it is notified and goes live

Safari Retreats judgement nullified with effect from 01st July 2017

The hon’ble Supreme Court of India Pronounced the Judgement in UOI vs Safari Retreats allowing Input tax credit on construction of mall if it qualifies as a plant.

Now Amendments have been made in the act to block the ITC on construction of immovable property like malls with retrospective effect from 01st July 2017.

Credit note liability can be reduced only if recipient accepts in IMS

Though the Invoice Management System is live in GST portal, the legal validity for the same is yet to be given.

Once the amendment is notified any person giving Credit note, can reduce the output liability only if the ITC is reduced by the recipient.

C. Other points in budget

The finance minister has proposed significant policy measures across various sectors, focusing on inclusive development, economic growth, and infrastructure expansion.

Taxation & Investment

• A new income tax bill will be introduced next week, aimed at fostering inclusive development and boosting middle-class spending.
• A model bilateral investment treaty will be drafted to attract foreign investments.
• Insurance FDI limit will be raised from 74% to 100%.
• Fast-track merger process for companies to streamline business operations.
• Tariff simplification: seven tariff rates to be removed, leaving only eight in place.

 Agriculture & Rural Development

• Dhan Dhanya Krishi Yojana will be launched in partnership with states, benefiting 1.7 crore farmers across 100 districts.
• Kisan credit card loan limit to be increased from ₹3 lakh to ₹5 lakh, benefiting 7.07 crore farmers.
• A six-year programme for pulses self-sufficiency under ‘atmanirbhar bharat’ will be launched.
• A five-year national mission on cotton production to support farmers.
• Three dormant urea plants in Eastern India have been reopened, with a 12.7 lakh metric ton capacity plant to be set up in Namrup, Assam.

 Industry & Manufacturing

• A new scheme for the footwear and leather sector will create 22 lakh jobs, generate ₹4 lakh crore in revenue, and boost exports beyond ₹1.1 lakh crore.
• A dedicated scheme for the toy industry will position India as a global manufacturing hub.
• Five national centres for skilling in manufacturing will be established.
• Expansion of IITs, with 100% capacity increase in the last decade and additional infrastructure for 6,500 more students.

Startups & MSMEs

• A new fund of funds for startups with an additional ₹10,000 crore contribution.
• Credit guarantee cover will be enhanced for MSMEs and startups.
• A new scheme for first-time women, scheduled caste, and Scheduled Tribe entrepreneurs will support five lakh beneficiaries.

Education & Healthcare

• 50,000 Atal tinkering labs (ATLs) will be set up in government schools over the next five years to promote scientific temper.
• Broadband connectivity for all secondary schools.
• A Centre of Excellence in AI for education will be established with an outlay of ₹500 crore.
• 75,000 new medical seats to be added over the next five years.
• A cancer hospital in every district will be developed to enhance healthcare infrastructure.

Infrastructure & Urban Development

• The ₹1 lakh crore urban challenge fund will support the transformation of cities into growth hubs, with ₹10,000 crore allocated for FY 2025-26.
• A three-year PPP pipeline for infrastructure projects, with a ₹1.5 lakh crore interest-free loan outlay.
• The Jal Jeevan mission will be extended with an increased focus on quality infrastructure and operations, providing potable tap water to 15 crore households.
• The modified UDAN scheme will connect 120 new destinations, serving 4 crore passengers over the next decade.

Social welfare & financial inclusion

• Saksham Anganwadi & Poshan 2.0 will provide nutritional support to 8 crore children, 1 crore mothers, and 20 lakh adolescent girls.
• PM Swanidhi Scheme to be revamped with higher loan limits and a ₹30,000 UPI-linked credit card for gig workers, including insurance coverage for nearly 1 crore workers.
• A centralized KYC system will be introduced to streamline financial transactions.
• Grameen credit scores will be maintained for self-help groups to enhance financial accessibility.

Research & Technology

• 10,000 fellowships under PM Research Fellowship Scheme for technological research in IITs and IISc over the next five years.
• ₹20,000 crore investment in private-sector-driven Research, Development & Innovation (R&D&I).
• The National Geospatial Mission will be launched to develop a foundational geospatial infrastructure.

Energy & Sustainability

• 100 GW of nuclear energy to be developed by 2047 as part of India’s energy transition strategy.

 Tourism & Trade

• Medical tourism (‘Heal in India’) to be promoted in partnership with the private sector.
• Top 50 tourism destinations to be developed in collaboration with state governments.

These initiatives signal a strong push toward economic growth, sustainability, and inclusive development, reinforcing India’s position as a global economic powerhouse.

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The author can be contacted at aman.rajput@mail.ca.in