Budget 2025 (Finance Bill 2025): Income Tax Proposed Amendments

Summary: The Finance Bill 2025 proposes significant amendments to the Income Tax Act, particularly regarding tax slabs, deductions, and compliance procedures. Under the new tax regime, the income tax slabs will be revised for assessment year 2026-27, with reduced rates for incomes up to Rs. 24,00,000. Additionally, the rebate under Section 87A has been enhanced, applying up to an income of Rs. 12,00,000. However, special income such as capital gains is excluded from rebate calculations. The Bill also introduces changes to Tax Deducted at Source (TDS) provisions, with higher thresholds for various incomes, like interest on securities and dividends. Additionally, provisions related to the collection of tax at source (TCS) on specific goods transactions will be omitted to reduce compliance burdens. Non-filers will no longer face higher TDS/TCS rates, aiming to streamline the process. Amendments also extend the time for filing updated returns up to 48 months from the end of the assessment year, with increased tax liabilities based on the delay period. Furthermore, the Bill proposes exemptions for withdrawals from the National Savings Scheme (NSS) post-2024 and extends tax benefits to contributions made under NPS Vatsalya accounts for minors. Lastly, the Bill introduces a presumptive taxation scheme for non-residents providing services to electronics manufacturing units in India, fostering the growth of India’s semiconductor sector. These changes will take effect starting April 1, 2025.

Certain Proposed Amendments to Income Tax Act 1961,

As per Finance Bill, 2025

Amendment 1 

Changes in tax rates of New Tax Regime prescribed under section 115BAC and rebate allowed under section 87A.

Revision of Slab Rates under New Tax Regime –

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 –

Revision of rebate allowed under section 87A –

The earlier rebate allowed till the Income of Rs. 7,00,000/- and now the same is replaced as Rs. 12,00,000/- and section is amended accordingly.

It is further proposed to insert a second proviso to provide that the rebate deduction shall not exceed the amount of income-tax payable as per the rates provided in sub-section (1A) of section 115BAC. (The rates as provided in above 1^st Amendment rate wise table).

This means any income charged separately to tax at special rates (e.g. Capital Gains at 20% or at 12.50%) will not be included for the calculation of rebate under section 87A and no rebate will be available for the same.

Amendment 2

Changes in rates of Tax Deduction and Tax Collection under Income Tax Act 1961.

There are various provisions of Tax Deduction at Source (TDS), with different thresholds and multiple rates. To improve ease of doing business and better compliance by taxpayers, it is proposed to rationalize certain rates of TDS and to increase threshold limit for applicability of the TDS provisions. These changes are applicable from 1^st April 2025.

Amendment 3

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

Section 206AB & Section 206CCA of the Act, requires deduction/Collection of tax at higher rate when the deductee specified therein is a non-filer of income-tax return. This is subject to other conditions specified in the two sections.

It was difficult to verify whether returns have been filed by the deductee/collectee, resulting in application of higher rates of deduction/collection, blocking of capital and increased compliance burden. Accordingly, these sections are now omitted.

These amendments will be applicable from 1^St April 2025.

Amendment 4

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

Sub-section (1H) of section 206C of the Act, 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.

To reduce the compliance burden and to facilitate ease of doing business it is proposed that these provisions will not be applicable from 1^st April 2025.

It is to be noted the TDS provisions on Goods under section 194Q will continue to be in application and only TCS provisions under section 206(1H) are removed by the government.

Amendment 5

Section 72A and 72AA Rationalisation of provisions related to carry forward of losses in case of amalgamation

Loss of predecessor entity shall carried forwarded by successor entity for not more than 8 years computed from the year in which the loss was first computed for the predecessor entity.

The proposed amendment is aimed to ensure that no carry forward and set off of accumulated loss is allowed after eight assessment years from the immediately succeeding the assessment year for which such loss was first computed for original predecessor entity.

Amendment 6

Extending the time-limit to file the updated return

Sub Section (8A) of the section 139 provides for the filing of an updated return, subject to condition provided in the section, up to 24 months from the end of assessment year. As per the proposed amendment the updated return can now be filed up to 48 months from the end of the relevant assessment year. These changes are applicable form 1^st April 2025.

Amendment 7

Exemption to withdrawals by Individuals from National Savings Scheme from taxation

Section 80CCA provides It is also provided that no deduction would be allowed in relation to such amount deposited on or after the 1st day of April, 1992 and 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, except in case of death of a person.

The Department of Economic Affairs issued a Notification dated 29.08.2024 providing that no interest would be paid on the balances in the NSS after 01.10.2024. It is therefore proposed to amend section 80CCA to provide exemption to the withdrawals made by individuals from these deposits for which deduction was allowed, on or after 29th day of August, 2024. This exemption is provided to the deposits, with the interest accrued thereon, made before 01.04.1992 as these are the amounts in respect of which a deduction has been allowed.

This amendment is applicable from 29^th August 2024 with retrospective effect.

Amendment 8

Deduction under section 80CCD for contributions made to NPS Vatsalya

It is proposed to extend the tax benefits available to the National Pension Scheme (NPS) under Section 80CCD of the Act to the contributions made to the NPS Vatsalya accounts, as follows:

(I) A deduction to be allowed to the parent’s total income, of the amount paid or deposited in the account of any minor under the NPS to a maximum of Rs 50,000/- overall as mandated under sub-section (1B) of section 80CCD;

(II) The amount on which deduction has been allowed under sub-section (1B) of section 80CCD or any amount accrued thereon, will be charged to tax when such amount is withdrawn, in the case where deposit was made in the account of a minor; and

(III) The amount on which deduction has been allowed and is received on closure of the account due to the death of the minor shall not be deemed to be the income of the parent/guardian;

These amendments are applicable from 1^st April 2025.

Amendment 9

Scheme of presumptive taxation extended for non-resident providing services for electronics manufacturing facility

In order to position India as the global hub for Electronics System Design and Manufacturing, a comprehensive program for the development of semiconductors and display manufacturing ecosystem in India was approved by Government of India. Ministry of Electronics and Information Technology has notified Schemes for setting up of such facilities in India.

It is proposed to provide a presumptive taxation regime for non-residents engaged in the business of providing services or technology, to a resident company which are establishing or operating electronics manufacturing facility or a connected facility for manufacturing or producing electronic goods, article or thing in India, under a scheme notified by the Central Government in the Ministry of Electronics and Information Technology and satisfies such conditions as prescribed in the rules.

It is proposed to insert a new section 44BBD, which deems 25% 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.