Finance Act 2025 – Key Amendments relating to Direct Taxes
The Finance Act 2025 has been notified on 29th March 2025. The Finance Act sections 1 to 91 (Page 1 to 39) amends Income Tax Act, section 136 (Page 49 to 49) amends Unit Trust of India (Transfer of Undertaking and Repeal) Act. The key amendments are summarised as follows
Revision in Income Tax Slab Rates under new regime for AY 2026-27: The Income Tax rates applicable under section 115BAC(1A)(ii) i.e. new regime, has been revised 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.
The amount of income-tax computed in accordance with the provisions (including capital gains under section 111A, 112 and 112A), shall be increased by health and education cess, and surcharge at the applicable rates. (Effective from AY 2026-27)
Revision in Rebate of Income Tax under section 87A: Proviso to section 87A provide rebate of income-tax up to Rs.25,000/-, in cases where the total income of individual taxpayers is chargeable to tax under section 115BAC(1A) i.e. under new regime, and the total income does not exceed Rs. 7,00,000/-, and marginal relief where the total income exceeds Rs. 7,00,000/-. The tax on incomes chargeable at special rates (for e.g. capital gains u/s 111A, 112, 112A etc.) are not included while determining the rebate of income-tax. It has been amended to enhance the limit of rebate from Rs. 25,000/- to Rs. 60,000/- and limit of total income for rebate from Rs. 7,00,000/- to Rs. 12,00,000/- with marginal relief where the total income exceeds Rs. 12,00,000/-. (Effective from AY 2026-27)
Effect of changes in Slab rate and Rebate: As a result of changes in slab rates and revision in rebate of income-tax, there will be no income tax payable up to income of Rs. 12 lakh (i.e. average income of Rs.1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs.12.75 lakh for salaried tax payers, due to standard deduction of Rs. 75,000. The total tax benefit due to changes in slab rate and rebate, at different income levels, is illustrated in the table below:
Amount (Rs.)
Increase in the limits on the income of the employees for the purpose of calculating perquisites: Section 17(2) provide that ‘perquisite’ includes the value of any benefit or amenity granted or provided free of cost or at concessional rate by any employer to an employee whose income under the head ‘Salaries’ as a monetary benefit, does not exceed fifty thousand rupees. It also provides that any expenditure incurred by the employer for travel outside India on the medical treatment of an employee or any member of the employee’s family shall not be included in ‘perquisite’, subject to the condition that the gross total income of such employee does not exceed two lakh rupees. It has been amended to provide ‘such amount as may be prescribed’, thus government having powers to amend the limits. (Effective from 1st day of April 2026 i.e. AY 2026-27)
Deduction under section 80CCD for contributions made to NPS Vatsalya: The NPS Vatsalya Scheme, enables parents and guardians to start a National Pension Scheme (NPS) account for their children. When a minor attains 18 years, the account continues to be operational, and transferred to the child’s name with the accumulated corpus. It has been provided to allow a deduction to the parent/guardian, of the amount paid or deposited in the account of any minor under the NPS for a maximum of Rs 50,000/- under section 80CCD(1B). (Effective from 1st day of April 2026 i.e. AY 2026-27)
Exemption to withdrawals by Individuals from National Savings Scheme from taxation: Section 80CCA, provides for a deduction to an individual, or a Hindu undivided family, for any amount deposited in the National Savings Scheme (NSS). It also provides that where such amount, together with the interest accrued on such amount standing to the credit of the assessee under the scheme is withdrawn, it shall be deemed to be the income of the assessee and shall be chargeable to tax. Since this provision has been sunset from 01.04.1992, the amounts taxable on withdrawal are those which were deposited in financial year 1991-92 and earlier. It has been amended to provide exemption to the withdrawals made by individuals on or after 29th day of August, 2024, from these deposits. (Effective from 29th day of August 2024)
Bringing clarity in income on redemption of Unit Linked Insurance Policy (ULIP): It has been amended to provide that ULIPs to which exemption under section 10(10D) does not apply, is a capital asset, under section 2(14). Thus, the profit and gains from the redemption of such ULIPs, shall be charged to tax as capital gains, under section 45(1B). Further, it has been amended to provide that ULIPs to which exemption under section 10(10D) does not apply, shall be included in the definition of equity oriented fund, under clause (a) of Explanation to section 112A. (Effective from 1st day of April 2026 i.e. AY 2026-27)
Annual value of the self-occupied property simplified: Section 23(2) provides that where house property is in the occupation of the owner for the purposes of his residence or owner cannot actually occupy it due to his employment, business or profession carried on at any other place, in such cases, the annual value of such house property shall be taken to be nil. It has been amended to provide that the ‘annual value of the property consisting of a house or any part thereof shall be taken as nil, if the owner occupies it for his own residence or cannot actually occupy it due to any reason’. This benefit shall continue to apply in respect of two of such houses only. (Effective from 1st day of April 2025 i.e. AY 2025-26)
Extending the time-limit to file the updated return: Section 139(8) provides that an updated return can be filed up to 24 months from the end of the relevant assessment year. It can be filed within 12 months from the end of the relevant assessment year, with payment of additional income-tax of 25% of aggregate of tax and interest payable, and can be filed after expiry of 12 months and up to 24 months from the end of the relevant assessment year, with payment of additional income-tax of 50% of aggregate of tax and interest payable. It has been amended to extend the time-limit to file the updated return from existing 24 months to 48 months from the end of relevant assessment year. The rate of additional income-tax payable after expiry of 24 months and up to 36 months shall be 60% and after expiry of 36 months and up to 48 months shall be 70% of aggregate of tax and interest payable. (Effective from 1st day of April 2025)
Equalisation levy on online advertisement services withdrawn: The Equalisation Levy was introduced in 2016 to tax online advertisement services provided by non-residents to Indian businesses. It was expanded to cover e-commerce transactions by foreign companies. The levy on e-commerce transactions was already removed by Finance No 2 Act 2024 from 01-08-2024. Now it has been amended to provide that Equalisation Levy will not apply to payments for online advertisements from 01-04-2025. (Effective from 1st day of April 2025)
Removal of higher TDS/TCS for non-filers of return of income: Section 206AB requires deduction of tax (TDS) at higher rate when the deductee specified therein is a non-filer of income-tax return. Section 206CCA requires for collection of tax (TCS) at higher rate when the collectee specified therein is a non-filer of income-tax return. It has been amended to omit section 206AB and section 206CCA from the 1st day of April, 2025. (Effective from 1st day of April 2025)
Removal of TCS on sale of specified goods: Section 206C(1H) requires any person being a seller who receives consideration for sale of any goods of the value or aggregate of value exceeding Rs 50 lakhs in any previous year, to collect tax from the buyer at the rate of 0.1% of the sale consideration exceeding Rs 50 lakhs, subject to certain conditions. It has been amended to provide that provisions of section 206C(1H) will not be applicable from the 1st day of April, 2025. (Effective from 1st day of April 2025)
TDS rate reduction for section 194LBC – Payments by Securitisation Trust: Section 194LBC requires that where any income is payable by a securitisation trust to an investor, being a resident, in respect of an investment in a securitisation trust, the person responsible for making the payment shall, deduct income-tax, at the rate of 25%, if the payee is an individual or a Hindu undivided family and 30%, if the payee is any other person. The TDS rates has been reduced from 25% and 30% to 10%. (Effective from 1st day of April 2025)
TDS threshold rationalization: TDS provisions have various thresholds of amount of payment or amount of income, beyond which tax is required be deducted. The thresholds have been revised as below:-
- Section 193 – Interest on securities: It requires that any person responsible for paying to a resident any income by way of interest on securities shall, at the time of credit of such income to the account of the payee or at the time of payment thereof, whichever is earlier, deduct income-tax at the rate of 10% on the amount of the interest payable. Currently there is no threshold. The amendment provides that tax shall be deducted only when the amount or the aggregate of amounts of income by way of interest on securities exceeds Rs. 10,000/- during a financial year. (Effective from 1st day of April 2025)
- Section 194A – Interest other than interest on securities: It requires that any person, not being an individual or a Hindu undivided family, responsible for paying to a resident any interest income other than interest income on securities, shall deduct income-tax thereon at the rate of 10%. Current threshold relating to banking company/ post office/ cooperative society is Rs 50,000/- for senior citizens and Rs 40,000/- for others. For any other case it is Rs 5,000/-. The amendment revise the threshold to Rs 100,000/-, Rs 50,000/- and Rs 10,000/- during a financial year respectively. (Effective from 1st day of April 2025)
- Section 194 – Dividends: It requires that the principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment by any mode in respect of any dividend or before making any distribution or payment to a shareholder, who is resident in India, of any dividend within the meaning of section 2(22), deduct from the amount of such dividend, income-tax at the rate of 10%. The current threshold is Rs 5,000/-. The amendment provides that no tax is required to be deducted when the amount or aggregate of amounts of such dividend to the shareholder, being an individual, does not exceed Rs. 10,000/- during a financial year. (Effective from 1st day of April 2025)
- Section 194B – Winnings from lottery or crossword puzzle: It requires that any person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, being the amount or the aggregate of amounts exceeding Rs. 10,000/- during the financial year shall, at the time of payment thereof, deduct income-tax thereon at the rate of 30%. The amendment revise the threshold, Rs 10,000/- now to apply for each single transaction. (Effective from 1st day of April 2025)
- Section 194BB – Winnings from horse race: It requires that any person, being a bookmaker or a person to whom a license has been granted by the Government under any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in any race course, who is responsible for paying to any person any income by way of winnings from any horse race , being the amount or aggregate of amounts exceeding Rs. 10,000/- during the financial year, shall, at the time of payment thereof, deduct income-tax thereon at the rate of 30%. The amendment revise the threshold, Rs 10,000/- now to apply for each single transaction. (Effective from 1st day of April 2025)
- Section 194D – Insurance commission: requires that any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, deduct income-tax thereon at the rates of 5% (other than companies) and 10% (domestic companies) provided that the amount of such payment exceeds Rs 15,000/- in a financial year. The amendment revise the threshold to Rs 20,000/- in a financial year. (Effective from 1st day of April 2025)
- Section 194G – Commission, etc., on sale of lottery tickets: It requires that any person who is responsible for paying, to any person, who is or has been stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remuneration or prize (by whatever name called) on such tickets, shall deduct income-tax thereon at the rate of 2%, if the amount paid during a financial year exceeds Rs. 15,000/-. The amendment revise the threshold to Rs 20,000/- in a financial year. (Effective from 1st day of April 2025)
- Section 194H – Commission or brokerage: It requires that any person, not being an individual or a Hindu undivided family, who is responsible for paying, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall deduct income-tax thereon at the rate of 2%, if the amount paid during a financial year exceeds Rs. 15,000/-. The amendment revise the threshold to Rs 20,000/- in a financial year. (Effective from 1st day of April 2025)
- Section 194-I – Rent: It requires that any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall deduct income-tax at the rate of 2%, when the amount of such rental income exceeds Rs. 2,40,000/- in a financial year. The amendment revise the threshold to Rs. 50,000/- in a month or part of a month. (Effective from 1st day of April 2025)
- Section 194J – Fees for professional or technical services: It requires for deduction of tax at source on payment by any person, not being an individual or a Hindu undivided family, who pays to a resident any sum of the nature of fees for professional or technical services, any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, or royalty, or any sum referred to in section 28(va), at the rate of 10%. The current threshold is Rs 30,000/-. The amendment revise the threshold to Rs 50,000/- in a financial year. (Effective from 1st day of April 2025)
- Section 194K – Income in respect of units: It requires that for any person responsible for paying to a resident any income in respect of units of a Mutual Fund specified under clause (23D) of section 10; or units from the Administrator of the specified undertaking; or units from the specified company, shall, deduct income-tax at the rate of 10%, provided the amount of such income to a payee exceeds Rs. 5,000/- in a year. The amendment revise the threshold to Rs 10,000/- in a financial year. (Effective from 1st day of April 2025)
- Section 194LA – Payment of compensation on acquisition of certain immovable property: It requires that any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, deduct an amount equal to 10% of such sum as income-tax thereon, provided that such amount exceeds Rs. 2,50,000/- in a financial year. The amendment revise the threshold to Rs 5,00,000/- in a financial year. (Effective from 1st day of April 2025)
TCS rates on timber and forest produce, and definition of forest produce rationalised: Section 206C(1) states that every seller shall collect tax at source at 2.5 per cent from the buyer of goods of certain specified nature i.e. timber obtained under a forest lease, timber obtained by any mode other than under a forest lease, and any other forest produce not being timber or tendu leaves. It has been amended to provide that “forest produce” shall have the same meaning as defined in any State Act for the time being in force, or in the Indian Forest Act, 1927. Further TCS rates have been reduced to 2 percent, for timber or any other forest produce (not being tendu leaves) obtained under a forest lease, and timber obtained by any mode other than under a forest lease. (Effective from 1st day of April 2025)
Extension of exemption to Specified Undertaking of Unit Trust of India (SUUTI): SUUTI was created as a successor of the erstwhile Unit Trust of India (UTI) and is mandated to liquidate the Government liabilities on account of erstwhile UTI. Section 13(1) of the UTI Repeal Act 2002, exempt SUUTI from payment of income-tax up to 31st day of March, 2025. The exemption has been extended till 31st day of March, 2027. (Effective from 1st day of April 2025)
Extension of timeline for tax benefits to start-ups: The existing provisions of Section 80-IAC of the Act, provide for a deduction of an amount equal to hundred percent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, beginning from the year of incorporation, at the option of the assessee, subject to the condition that the total turnover of its business does not exceed one hundred crore rupees, it is holding a certificate of eligible business from the Inter-Ministerial Board of Certification, and it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2025. It has been amend extend the benefit for another period of five years, i.e. for start-ups incorporated before 1st April 2030. (Effective from 1st day of April 2025)
Scheme of presumptive taxation extended for non-resident providing services for electronics manufacturing facility: A comprehensive program for the development of semiconductors and display manufacturing ecosystem in India was approved by Government of India. In this context, non-residents will be providing support in setting up of such electronics manufacturing facilities by deploying the technology and providing support services. A new section 44BBD has been inserted, which deems twenty-five per cent of the aggregate amount received/ receivable by, or paid/ payable to, the non-resident, on account of providing services or technology, as profits and gains of such non-resident from this business. A new proviso has also been added to provide that Section 44DA (Income by way of royalties, etc., in case of non-residents) and Section 115A (Tax on dividends, royalty and technical service fees in the case of foreign companies) will not apply to income calculated under Section 44BBD. (Effective from 1st day of April 2026 i.e. AY 2026-27)
Extension of benefits of tonnage tax scheme to inland vessels: Tonnage tax scheme is applicable for Indian shipping industry wherein the qualifying shipping companies are given the choice to opt for the tonnage tax regime or continue to remain within the normal corporate tax regime. Section 115VD has been amended to include inland vessels being eligible to be a qualified ship so as to extend the benefits of tonnage tax scheme to Inland Vessels registered under Inland Vessels Act, 2021. (Effective from 1st day of April 2026 i.e. AY 2026-27)
Rationalisation of transfer pricing provisions for carrying out multi-year arm’s length price determination: Transfer pricing provisions contained in sections 92 to 92F, enable computation of income arising from an international transaction or a specified domestic transaction with regard to an arm’s length price. It has been amended to provide that the arm’s length price (ALP) determined in relation to an international transaction or a specified domestic transaction for any previous year, at the option of the assessee, shall apply to the similar transaction for the two consecutive previous years immediately following such previous year. The assessee shall be required to exercise an option, Transfer Pricing Officer (TPO) may by an order within one month from the end of the month in which such option is exercised, declare that the option is valid, TPO shall determine the ALP in relation to such similar transaction for such consecutive previous years, Assessing Officer (AO) shall recompute the total income of the assessee in conformity with the ALP so determined by the TPO. (Effective from 1st day of April 2026 i.e. AY 2026-27)
Rationalisation of provisions related to carry forward of losses in case of amalgamation: Section 72A and 72AA provide provisions relating to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in cases of amalgamation or business reorganization. It has been amended to provide that any loss forming part of the accumulated loss of the predecessor entity, which is deemed to be the loss of the successor entity, shall be eligible to be carried forward for not more than eight assessment years immediately succeeding the assessment year for which such loss was first computed for original predecessor entity. (Effective from 1st day of April 2026)
Incentives to International Financial Services Centre:
International Financial Services Centre (IFSC) is a jurisdiction that provides financial services to non-residents and residents, to the extent permissible under the current regulations, in any currency except Indian Rupee. In order to promote the development of world-class financial infrastructure in India, several tax concessions have been provided to units located in IFSC.
- Extension of sunset dates for several tax concessions pertaining to IFSC: The sunset dates for commencement of operations of IFSC units for several tax concessions, or relocation of funds to IFSC has been extended to 31st day of March, 2030. This extension of sunset date relates to sub-section 2(d) of section 80LA (Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre), clause (4D), clause (4F) and clause (4H) of section 10 (Incomes not included in total income) and clause (viiad) of section 47 (Transactions not regarded as transfer). (Effective from 1st day of April 2025)
- Exemption on life insurance policy from IFSC Insurance offices: Section 10(10D) provides exemption to sum received under a life insurance policy including the sum allocated by way of bonus on such policy, subject to proviso that exemption under the said clause is not available if annual amount of premium or aggregate of premiums payable is above Rs. 2.5 lakhs for unit linked insurance policies, and Rs. 5 lakhs for life insurance policies other than unit linked insurance policies. This clause has been amended to provide that proceeds received on life insurance policy issued by IFSC insurance office shall be exempt without the condition related to the maximum premium payable on such policy as mentioned above. (Effective from 1st day of April 2025)
- Exemption to capital gains and dividend for ship leasing units in IFSC: Section 10(4H) has been amended to provide exemption to non-residents or units of IFSC engaged in ship leasing on capital gains tax on transfer of equity shares of domestic companies being units of IFSC, engaged in ship leasing. Further section 10(34B) has been amended to provide exemption to dividend paid by a company being a unit of IFSC engaged in ship leasing, to a unit of IFSC engaged in ship leasing. (Effective from 1st day of April 2025)
- Rationalisation of definition of ‘dividend’ for treasury centres in IFSC: Section 2(22) has been amended to provide that any advance or loan between two group entities, where one of the group entity is a “Finance company” or a “Finance unit” in IFSC set up as a global or regional corporate treasury centre for undertaking treasury activities or treasury services and the ‘parent entity’ or ‘principal entity’ of such ‘group entity’ is listed on stock exchange in a country or territory outside India, other than the country or territory outside India as may be specified by the Board in this behalf, shall not be treated as ‘dividend’. The conditions for a ‘group entity’, ‘principle entity’ and the ‘parent entity’ shall be separately prescribed. (Effective from 1st day of April 2025)
- Simplified regime for fund managers based in IFSC: There is a need to provide a specific simplified regime for IFSC based fund managers, managing funds situated in other jurisdiction so that fund managers in IFSC are at par with the fund management entities in competing foreign jurisdiction. The provisions of section 9A have been so amended. (Effective from 1st day of April 2025)
- Amendment of Section 10 related to Exempt income of Non-Residents: Section 10 (4E) has been amended to provide that the income of a non-resident on account of transfer of non-deliverable forward contracts or offshore derivative instruments or over the-counter derivatives, or distribution of income on offshore derivative instruments or over the-counter derivatives, entered into with Foreign Portfolio Investors being an IFSC unit shall not be included in the total income subject to certain conditions as may be prescribed. Thus both offshore ant OTC derivatives get tax exemption. (Effective from 1st day of April 2026 i.e. AY 2026-27)
- Inclusion of retail schemes and Exchange Traded Funds (ETFs) in the existing relocation regime of funds of IFSCA: The income of retail schemes and Exchange Traded Funds (ETFs) located in the IFSC and, is regulated under the International Financial Services Centres Authority Act, was granted exemption along with previously exempted specified funds as per section 10(4D). Such retail schemes/ ETFs have now been included within the definition of resultant fund for the purposes of section 47(viiad) so that relocation of original funds to such funds in the IFSC is also a tax-neutral transaction. (Effective from 1st day of April 2026 i.e. AY 2026-27)
Extension of date of making investment by Sovereign Wealth Funds, Pension Funds & others and rationalisation of tax exemptions: Section 10(23FE) provides for the exemption to specified persons from the income in the nature of dividend, interest, long-term capital gains or certain other incomes arising from an investment made by it in India. Specified persons are Sovereign Wealth Fund (SWF), Pension Fund (PF) which fulfils conditions prescribed therein and are specified for this purpose by notification. Section 10(23FE) has been amended to provide that long-term capital gains arising from an investment made by it in India, shall not be included in the total income of a specified person, and the date of investment under the said clause has been extended to 31st day of March, 2030. (Effective from 1st day of April 2025)
Simplification of tax provisions for charitable trusts/institutions: Income of any trust or institution registered under section 12AB of the Act is exempt subject to the fulfilment of the conditions provided in the Act. Section 12A and 12AB provides for procedure relating to application, approval and cancellation of the registration and to claim exemption under section 11 and 12 of Income Tax Act.
- Period of registration of smaller trusts or institutions: Section 12AB has been amended 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 section 12A(1)(ac) 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 1st day of April 2025)
- Rationalisation of ‘specified violation’ for cancellation of registration of trusts or institutions: Section 12AB(4) provides that where registration or provisional registration of a trust or an institution has been granted and subsequently, the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year, he shall, pass an order in writing, cancelling the registration of such trust or institution. Section 12AB(4) has been amended to provide that the situations where the application for registration of trust or institution is not complete, shall not be treated as specified violation for the purpose of the said sub-section. (Effective from 1st day of April 2025)
- Rationalisation of persons specified under section 13(3) for trusts or institutions: Section 13 provides, that section 11 or section 12 shall not apply to exclude any income from the total income of trust of institution, if such income or any property of the trust or the institution is used or applied, directly or indirectly for the benefit of any person so specified. It has been amended to provide that persons referred to in Section 13(3)(b), shall be any person whose total contribution to the trust or institution, during the relevant previous year exceeds one lakh rupees, or, in aggregate up to the end of the relevant previous year exceeds ten lakh rupees. The relative of any such person or any concern in which such person has a substantial interest shall not be included. (Effective from 1st day of April 2025)
Rationalisation in taxation of Business trusts: Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InVIT) are commonly referred to as business trusts. The special taxation regime under section 115UA, provides a pass-through status to business trusts in respect of interest income, dividend income and rental income subject to conditions. Such income is taxable in the hands of the unit holders unless specifically exempted.
— Section 115UA(2) provides that the total income of a business trust shall be charged to tax at the maximum marginal rate, subject to the provisions of section 111A (tax on short term capital gain) and section 112 (tax on long term capital gain). It has been amended to include section 112A (tax on long term capital gain in certain cases) as well. Thus the total income of a business trust shall be charged to tax at the maximum marginal rate, subject to the provisions of section 111A, section 112 and section 112A. (Effective from 1st day of April 2026 i.e. AY 2026-27)
Harmonisation of ‘Significant Economic Presence’ applicability with ‘Business Connection’: Section 9 provides that all income accruing or arising, whether directly or indirectly, through or from any business connection in India shall be deemed to accrue or arise in India. Explanation 1 provides that in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export. Explanation 2A provides that the significant economic presence of a non-resident in India shall constitute “business connection” in India and “significant economic presence” for this purpose shall mean transaction in respect of any goods carried out by a non-resident with any person in India. Explanation 2A has been amended so that the transactions or activities of a non-resident in India which are confined to the purchase of goods in India for the purpose of export shall not constitute significant economic presence. (Effective from 1st day of April 2026 i.e. AY 2026-27)
Exclusion of Indirect Participation from 5% Threshold in Section 9A: Section 9A ensures that an eligible investment fund managed by an Indian fund manager is not considered to have a business connection or residency in India. It provides that Indian residents’ investment in the fund should not exceed 5% of its corpus. The both direct and indirect investments by Indian residents were counted under the 5% limit. It has been amended to remove inclusion of indirect investments. (Effective from 1st day of April 2025)
Amendment of Definition of ‘Capital Asset’: It has been amended to provide that any security held by investment funds referred to in Section 115UB which has invested in such security in accordance with the regulations made under SEBI and IFSCA would be treated as capital asset only so that any income arising from transfer of such security would be in the nature of capital gain. (Effective from 1st day of April 2026 i.e. AY 2026-27)
Rationalisation of taxation of capital gains on transfer of capital assets by non-residents: Section 115AD provide that where the total income of a specified fund or Foreign Institutional Investor includes, income by way of short-term or long-term capital gains arising from the transfer of securities (other than units referred to in section 115AB), the income-tax on the income by way of long-term capital gains included in the total income, shall be calculated at the rate of ten per cent. The provisions of section 115AD has been amended to provide that income-tax on the income by way of long-term capital gains shall be calculated at the rate of twelve and one-half per cent. (Effective from 1st day of April 2026 i.e. AY 2026-27
Amendments proposed in provisions of Block assessment for search and requisition cases: The concept of block assessment was introduced by amending sections 158B to 158BI to be made applicable where a search under section 132 of the Act is initiated or requisition under section 132A is made, on or after 1st September, 2024. Section 158B has been amended to add the term “virtual digital asset” to the definition of “undisclosed income”. Section 158BE has been amended to provide that time-limit for completion of block assessment is proposed to be made as twelve months from end of the quarter in which the last of the authorisations for search or requisition has been executed. The undisclosed income will be directly computed as the sum of income declared by the assessee and income determined by the Assessing Officer. (Effective from 1st day of February 2025)
Adjustments to be made for inconsistencies in ITR compared to previously filed ITRs: Section 143(1)(a) of the Income-tax Act allows the Income tax department to process Income-tax Returns and check for basic errors, incorrect calculations, and mismatches in tax payments. It has been amended to provide that if there is a difference between the details provided in the current ITR and the ITRs of previous years, the tax department can make adjustments while processing the return. It will define what qualifies as an inconsistency under this provision. If any such mismatch is found, the taxpayer may be asked to clarify or correct the return before final processing. (Effective from 1st day of April 2025)
Non-applicability of Section 271AAB of the Act: Section 271AAB(1A) relates to penalty in respect of searches initiated after 15th December 2016. It has been amended to provide that these provisions shall not be applicable to the assessee in whose case search has been initiated under provisions of Block Assessment under section 132 on or after the 1st day of September, 2024. (Effective from 1st day of September 2024)
Amendments proposed in sections 132 and 132B for rationalising provisions: Section 132 relates to search and seizure. Section 132(8) provides that the last date for taking approval for retention of seized books of account or other documents is 30 days from the date of the assessment or reassessment or re-computation order. It has been amended to provide that the time limit for taking approval for retention shall be one month from end of the quarter in which the assessment or reassessment or re-computation order has been made. The clause (ii) of Explanation 1 to the section 132B has been amended to update referencing to section 158B instead of the present section 158BE. (Effective from 1st day of April 2025)
Time limit to impose penalties rationalised: Section 275 provide for the bar of limitation for imposing penalties, and is having multiple timelines for imposition of penalties in various cases. It has been amended to provide that any order imposing a penalty under Chapter XXI shall not be passed after the expiry of six months from the end of the quarter in which the connected proceedings are completed, or the order of appeal is received by the jurisdictional Principal Commissioner or Commissioner, or the order of revision is passed, or the notice for imposition of penalty is issued, as the case may be. (Effective from 1st day of April 2025)
Clarification regarding commencement date and the end date of the period stayed by the Court: Section 144BA, section 153, section 153B, section 158BE, section 158BFA, section 263, section 264 and Rule 68B of Schedule-II, provide that period during which the proceedings under respective provisions are stayed by an order or injunction of any court, shall be excluded in computing the time limit for conclusion of the proceedings. The provisions have been amended so as to exclude the period commencing on the date on which stay was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal Commissioner or Commissioner. (Effective from 1st day of April 2025)
Obligation to furnish information in respect of crypto-asset: Section 115BBH provides that the transfer of virtual digital assets (VDA) is to be taxed at the rate of 30% with no deduction in respect of expenditure (other than cost of acquisition) to be allowed. Section 194S provide for deduction of tax on payment for transfer of VDA at the rate of 1% of transaction value including cases where the transaction occurs in kind or partly in cash. Section 285BAA has now been inserted to provide for obligation to furnish information of crypto-asset. The definition of VDA under section 2(47A) has been expanded to include any crypto-asset being a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions, whether or not already included in the definition of virtual digital asset or not. (Effective from 1st day of April 2026)
Increasing time limit available to pass order under section 115VP: Section 115VP pertains to method and time of opting for tonnage tax scheme. It provides that a qualifying company may opt for the tonnage tax scheme by making an application to the Joint Commissioner having jurisdiction over the company, as prescribed, for such scheme. The order, whether approving or rejecting the application to exercise option of tonnage tax scheme, to be passed before the expiry of one month from the end of the month in which the application was received. It has been amended to provide that for application received on or after the 1st day of April, 2025, order shall be passed before the expiry of three months from the end of the quarter in which such application was received. (Effective from 1st day of April 2025)
Excluding the period such as court stay etc. for calculating time limit to pass an order: Section 206C(7A) provides that no order shall be made deeming a person to be an assessee in default for failure to collect the whole or any part of the tax from any person, after the expiry of six years from the end of the financial year in which tax was collectible or two years from the end of the financial year in which the correction statement is delivered, whichever is later. It has been amended to provide the exclusion of the time period such as period for which proceedings were stayed by an order of any court, etc. is required to be provided. (Effective from 1st day of April 2025)
Exemption from prosecution for delayed payment of TCS in certain cases: Section 276BB of the Act provides for prosecution in case of failure to pay the tax collected at source to the credit of Central Government. It has been amended to provide that the prosecution shall not be instituted against a person covered under the said section, if the payment of the tax collected at source has been made to the credit of the Central Government at any time on or before the time prescribed for filing the quarterly statement. (Effective from 1st day of April 2025)
Certain penalties to be imposed by the Assessing Officer: Sections 271C, 271CA, 271D, 271DA, 271DB and 271E provide that penalty under these sections shall be imposed by the Joint Commissioner, even though, assessment in such cases were being made by the Assessing Officer. It has been amended to provide that penalties under these sections shall be levied by the Assessing Officer in place of Joint Commissioner, subject to the provisions of section 274(2). The, Assessing Officer shall take the prior approval of Joint Commissioner for the passing of penalty order, where penalty amount exceeds the limit specified. (Effective from 1st day of April 2025)
Removing date restrictions on framing the schemes in certain cases: The enabling provision for notifying faceless schemes under sections 92CA, 144C, 253 and 255 of the Act were introduced. It has been amended to provide that end date prescribed for faceless schemes may be omitted so as to provide that Central Government may issue directions beyond the cut-off date of 31st day of March, 2025, if required. (Effective from 1st day of April 2025)
Extending the processing period of application seeking immunity from penalty and prosecution: Section 270AA provides procedure of granting immunity by the Assessing Officer from imposition of penalty or prosecution, subject to fulfilment of certain conditions as mentioned therein. An application for granting immunity from imposition of penalty shall be made within one month from the end of the month in which the order has been received by the assessee. Assessing Officer shall pass an order accepting or rejecting the application, within a period of one month from the end of the month in which the application requesting immunity is received. It has been amended to extend the processing period to three months from the end of the month in which application for immunity is received by the Assessing Officer. (Effective from 1st day of April 2025)
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Disclaimer: The contents of this article are for informational purposes only. The user may refer to the notification issued by Central Government on Tax matters for specific interpretation and compliances related to a particular subject matter)
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