Summary: Budget 2025 introduces changes in income tax rates under the new tax regime, effective from AY 2026-27. Tax slabs range from nil for income up to ₹4,00,000 to 30% for income above ₹24,00,000. Section 87A rebate has been increased to ₹60,000 but excludes special incomes like capital gains. TDS thresholds have been revised, with increases for interest on securities, mutual fund income, lottery winnings, rent, and professional fees. The registration period for certain trusts and institutions is extended from five to ten years. The time limit for filing updated returns has been extended from two to four years, with penalties increasing progressively. Changes in IFSC regulations extend tax exemptions on capital gains, offshore derivatives, and life insurance proceeds issued by IFSC intermediaries. A new Section 44BBD deems 25% of gross receipts of non-resident electronics manufacturers as taxable income. Sovereign wealth and pension fund tax exemptions are extended until 2030. Loss carryforward provisions for amalgamated entities are now limited to eight years. Section 80CCD allows deductions for contributions to NPS Vatsalya, with partial withdrawals up to 25% being tax-exempt. Withdrawals from National Savings Schemes for deposits before April 1992 are also exempt. Finally, the annual value of up to two self-occupied houses is now considered nil for tax purposes.
FINANCE BILL SUMMARY (Major Highlights)
1. Change in Rates of Tax under New Tax Regime:
W.e.f. AY 2026-27, the rates of tax as per Section 115BAC(1A) are as follows and accordingly the Rebate under Section 87A has been increased from Rs.25,000 to Rs.60,000 (applicable to Resident Individual) and this rebate is not available against the special incomes like Capital gains.
| S No | Total Income | Rate of Tax |
| 1 | Upto Rs.4,00,000 | Nil |
| 2 | Rs.4,00,001- Rs.8,00,000 | 5% |
| 3 | Rs.8,00,001-Rs.12,00,000 | 10% |
| 4 | Rs.12,00,001-Rs.16,00,000 | 15% |
| 5 | Rs.16,00,001- Rs.20,00,000 | 20% |
| 6 | Rs.20,00,001- Rs.24,00,000 | 25% |
| 7 | >Rs.24,00,000 | 30% |
Illustrations explaining the tax calculation: (If increase in tax is more than increase in total income, such increase in income will be allowed as marginal relief)
| Total Income | Tax Calculation | Tax Liability | Marginal Relief | Net Income Tax Payable |
| Rs.12,10,000 | (4,00,000*5%)+(4,00,000*10%)
+(10,000*15%) |
61,500 | As the total income exceeded Rs.10,000 beyond slab, tax increases by Rs.1,500. Marginal Relief is Rs.1,500/- | 60,000 |
| Rs.16,10,000 | (4,00,000*5%)+(4,00,000*10%)
+(4,00,000*15%)+(10000*20%) |
1,22,000 | As the total income exceeded Rs.10,000 beyond slab of Rs.16 Lakhs, tax increases by Rs.2,000. Marginal Relief is Rs.2,000/- | 1,20,000 |
| Rs.20,10,000 | (4,00,000*5%)+(4,00,000*10%)
+(4,00,000*15%)+(4,00,000*20% +(10000*25%) |
2,02,500 | As the total income exceeded Rs.10,000 beyond slab of Rs.20 Lakhs, tax increases by Rs.2,500. Marginal Relief is Rs.2,500/- | 2,00,000 |
| Rs.12,25,000 | (4,00,000*5%)+(4,00,000*10%)
+(25,000*15%) |
63,750 | As the total income exceeded Rs.10,000 beyond slab, tax increases by Rs.3,750. Marginal Relief is Rs.3,750/- | 60,000 |
2. Changes in Thresholds and rates of TDS: (Amendments w.e.f 01.04.2025)
| Section | Current Threshold | Proposed Threshold |
| 193- Interest on Securities | – | Rs.10000 |
| 194A – Interest other than Interest on Securities | Senior Citizens – Rs.50,000
Others – Rs.40,000 |
Senior Citizens – Rs.1,00,000
Others – Rs. 50,000 |
| 194 – Dividend for Individual Shareholder | Rs.5,000 | Rs.10,000 |
| 194K – Income in respect of units of mutual fund or Specified Company or Undertaking | Rs.5,000 | Rs.10,000 |
| 194B – Winnings from Lottery, Cross word Puzzle etc | Aggregate exceeding Rs.10,000/- during the financial year | Rs.10,000/- for a single transaction |
| 194BB – Winnings from Horse race | Aggregate exceeding Rs.10,000/- during the financial year | Rs.10,000/- for a single transaction |
| 194D – Insurance Commission | Rs.15,000/- | Rs.20,000/-
|
| 194G- Income by way of commission, prize etc on Lottery tickets | Rs.15,000/- | Rs.20,000/-
|
| 194H – Commission or Brokerage | Rs.15,000/- | Rs.20,000/-
|
| 194I – Rent | Rs.2,40,000 for a financial year | Rs.50,000 per month or part of a month
Note: Per month limit of Rs.50,000 to be considered instead of Rs.6,00,000 per annum |
| 194J- Fee for Professional or Technical Services | Rs.30,000/- | Rs.50,000/- |
| 194LA – Income by way of enhanced compensation | Rs.2,50,000/- | Rs.5,00,000/- |
3. Amendment of Section 13:
Trusts or Institutions (Gross total Income upto 5 cr for the two previous years), the period of registration has extended from 5 years to 10 years.
Substantial Contributor means a person contributing more than Rs.1 lakhs in the relevant FY or aggregate of Rs.1 Lakhs upto the relevant financial year (previously it was Rs.50,000)
4.TCS on sale of goods under Section 206C(1H) has been removed to ease the complication of the simultaneous applicability of this provision along with the provisions of Section 194Q TDS on purchase of goods
5.Extension of time limit to file the Updated Return from 2 years to 4 years (Section 139(8A) of the Income Tax Act)
| Time period | Present penalty | Proposed penalty |
| Up to 12 months from the end of relevant assessment year | 25% of aggregate of tax and interest payable | 25% of aggregate of tax and interest payable |
| Up to 24 months from the end of relevant assessment year | 50% of aggregate of tax and interest payable | 50% of aggregate of tax and interest payable |
| Up to 36 months from the end of relevant assessment year | 60% of aggregate of tax and interest payable | |
| Up to 48 months from the end of relevant assessment year | 70% of aggregate of tax and interest payable |
6. For units located in IFSC
i. As a measure to promote investment and employment, the sunset dates for commencement of operations in IFSC is proposed to be extended upto 31.03.2030.
ii. Section 10(10D) provides exemption in case of any sum received under a life insurance policy including the sum allocated by way of bonus on such policy
However, such exemption is not available if the annual amount of premium or aggregate of premiums payable in respect of such policy exceeds Rs.2.5 lakhs in respect of Unit Linked Insurance Policies or Rs.5 Lakhs in respect of insurance policies other than Unit Linked Insurance Policies.
iii. Budget 2025 amends this Section 10(10D) to exempt the proceeds received on Life Insurance Policy issued by IFSC issuance intermediary office without the condition related to payment of premiums as mentioned above.
iv. Exemption of capital gains tax on transfer of shares of domestic companies being units in IFSC and dividend income to Ship leasing business ( Nonresidents or units in IFSC)
v. The income of a non-resident from the transfer of non-deliverable forward contracts, offshore derivative instruments, over-the-counter derivatives, or any distribution of income from offshore derivative instruments entered with an offshore banking unit in an International Financial Services Centre (IFSC) is exempt.
7. Insertion of new Section 44BBD of the Income Tax Act for Non Residents providing services Electronics Manufacturing Facility:
Section 44BBD deems that 25% of the gross receipts to be deemed as Business income.
8. Extension of Tax exemption for Sovereign Wealth Funds and Pension Funds:
Section 10(23FE) of the Income Tax Act provided exemption in respect of income by way of interest, dividend, capital gains arising from the investment made by it in India. Budget 2025 extends the date of investment from 31.03.2025 to 31.03.2030 and the provisions related to short term capital gains (from unlisted debt securities as short term) shall not applicable to investments made by sovereign wealth funds and pension funds.
9. Amendment of provisions relating to carry forward of losses for Amalgamated entity:
Section 72A and 72AA of the Income Tax Act provides the provisions relating to carry forward and set off of accumulated losses and unabsorbed depreciation in case of amalgamation or business reorganization.
Budget 2025 amends such provisions to carry forward the business losses or unabsorbed depreciation for not more than 8 years immediately succeeding the assessment year for which such loss was first computed for predecessor entity.
10. Deduction under Section 80CCD for contributions made to NPS Vatsalya:
Section 80CCD(1B) provides deduction in respect of contribution made by parent/ guardian in the name of such minor under NPS to the maximum of Rs.50,000/-
This scheme also allows the partial withdrawal and this will not form part of the total income provided such withdrawal is upto 25% of the contribution made.
And any amount received on the death of such minor is exempt.
11. Exemption to withdrawals by Individuals from National Savings Scheme:
Budget 2025 amends Section 80CCA to provide exemption to the withdrawals made by individuals from these deposits for which deduction was allowed on or after 29.08.2024 and this exemption is provided to the deposits with the interests accrued thereon, made before 01.04.1992 as these are the amounts for which such deduction has been allowed.
12. Annual letting value of Two Self Occupied Houses to be taken as Nil
Section 23(2) of the Income tax Act was amended to provide 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 occupy it due to any other reason.
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