Union Budget 2025 Direct Tax Highlights: Key Proposals

Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, included significant changes to direct taxation, benefiting the middle class. A new income tax regime introduces no tax for incomes up to Rs 12 lakh, with salaried individuals enjoying a standard deduction of Rs. 75,000, allowing for no tax on up to Rs 12.75 lakh. A new tax slab was proposed with revised rates for various income ranges, and the rebate limit under Section 87A was increased from Rs 7 lakh to Rs 12 lakh, offering a rebate of Rs 60,000. Taxpayers earning up to Rs. 25 lakh would see a Rs. 1.1 lakh benefit under the new regime. Additionally, the senior citizen tax deduction on interest income was doubled to Rs 1,00,000, and the TDS limit on rent increased from Rs 2.4 lakh to Rs 6 lakh annually. The budget also allows taxpayers to claim the annual value of two self-occupied properties as nil and extends the time limit for filing updated returns from 2 to 4 years. To reduce compliance, the government proposed removing TCS on certain goods transactions and on remittances for education funded through loans. Other proposals include decriminalization of delayed TDS and TCS payments, the introduction of a scheme for determining arm’s length prices for international transactions, and expanding safe harbor rules.

Lets go through with highlights of Budget on Direct taxation matters.

The Finance Bill is set to be tabled next week, according to the Finance Minister.

New Income Tax Regime:

• No Tax Up to Rs 12 Lakh- Individuals having income up to Rs 12 lakh annually will not have to pay income tax. Further, for salaried class there is a standard deduction of Rs. 75,000/- which leads to NO TAX UPTO 12.75 Lakh of income in case of salaried persons.
• FM mentioned that, people who earn up to 25 lakh, will get a benefit of Rs. 1.1 lakh in new regime as compare to existing one.
• Also, FM has announced a new tax slab for individuals, stated below:

• The government has announced an increase in the rebate limit under Section 87A of the Income Tax Act. Earlier the rebate u/s 87A is available on income up to 7 lakh and the same has been raised from 7 lakh to 12 lakh now. However, it’s important to note that this benefit will not be applicable to income taxed under special tax rates, as clarified by the Finance Minister.
• Total rebate u/s 87A will be amounting to Rs.60,000.
• Even if your income is slightly exceeds Rs. 12,00,000, you will still get marginal relief which will reduce your extra tax burden.

Other Direct Tax proposals:

• Tax deduction limit on interest income for senior citizen has been doubled from 50,000 to 1,00,000/-
• TDS on rent- the annual monetary limit of 2,40,000 has been increased up to 6,00,000/-
• The tax payers to be allowed  to claim the annual value  TWO self occupied properties (earlier- 1 self occupied property with attached conditions) as NIL without any condition
• The time limit for filing updated returns for any assessment year has been increased from the current 2 years to 4 years.
• Proposals for removing TCS:
  • Omitting TCS on transactions related to the sale of goods to reduce compliance difficulties
  • Proposed to remove TCS on remittances for education purposes if the remittance is funded through a loan taken from a specified financial institution
• In budget 2024, provisions related to decriminalization of delayed payment of TDS were introduced. Similar to that, a same relaxation will apply to TCS provisions as well.
• Introduction of a scheme for determining arm’s length price of international transactions for a block period of three years.
• Expansion of scope of safe harbor rules to reduce litigation and provide certainty in international taxation.

There are several other announcements and proposals was there in FM’s speech in relation to indirect taxation and other domestic concerns. That will be summarized in another article.