Major Income Tax Changes Effective from 1st April 2025
Income Tax Slabs for FY 2025-26 (AY 2026-27) - The Budget 2025 has introduced revised tax slab rates under Section 115BAC, also known as the New Tax Regime or the Default Tax Regime. The primary objective is to enhance savings and increase disposable income. These updated tax slabs will apply to income earned from FY 2025-26 onwards.
New Income Tax Slab Rates for FY 2025-26:
| Income Range | Tax Rate |
|---|---|
| Up to Rs. 4 lakh | NIL |
| Rs. 4 lakh - Rs. 8 lakh | 5% |
| Rs. 8 lakh - Rs. 12 lakh | 10% |
| Rs. 12 lakh - Rs. 16 lakh | 15% |
| Rs. 16 lakh - Rs. 20 lakh | 20% |
| Rs. 20 lakh - Rs. 24 lakh | 25% |
| Above Rs. 24 lakh | 30% |
Note: The tax slab rates under the Old Tax Regime (Optional Regime) remain unchanged.
Increased Rebate Under Section 87A - The rebate under Section 87A for taxpayers opting for the New Tax Regime has been increased from Rs. 25,000 to Rs. 60,000. Consequently, individuals earning up to Rs. 12 lakh will have no tax liability under this regime.
Changes in Tax Deduction at Source (TDS) - Effective April 2025, the threshold limits for TDS under various sections have been revised as follows:
| Section | Threshold Before 1st April 2025 | Revised Threshold (From 1st April 2025) |
|---|---|---|
| 193 - Interest on securities | NIL | Rs. 10,000 |
| 194A - Interest (other than securities) | Rs. 50,000 (Senior Citizens) / Rs. 40,000 (Others - Banks, Cooperatives, Post Office) / Rs. 5,000 (Others) | Rs. 1,00,000 (Senior Citizens) / Rs. 50,000 (Others - Banks, Cooperatives, Post Office) / Rs. 10,000 (Others) |
| 194 - Dividend (for individual shareholders) | Rs. 5,000 | Rs. 10,000 |
| 194K - Mutual fund unit income | Rs. 5,000 | Rs. 10,000 |
| 194B/194BB - Lottery, crossword, horse race winnings | Rs. 10,000 aggregate (per financial year) | Rs. 10,000 per transaction |
| 194D - Insurance commission | Rs. 15,000 | Rs. 20,000 |
| 194G - Lottery ticket commission/prizes | Rs. 15,000 | Rs. 20,000 |
| 194H - Commission or brokerage | Rs. 15,000 | Rs. 20,000 |
| 194-I - Rent | Rs. 2,40,000 (per year) | Rs. 50,000 (per month) |
| 194J - Professional/technical fees | Rs. 30,000 | Rs. 50,000 |
| 194LA - Enhanced compensation income | Rs. 2,50,000 | Rs. 5,00,000 |
| 194T - Remuneration, interest, and commission paid to partners | NIL | Rs. 20,000 |
Note: Provisions under other TDS sections remain unchanged.
Tax Collected at Source (TCS) Updates - Effective April 2025, the TCS threshold limits have been revised as follows:
| Section | Previous Threshold | Revised Threshold |
|---|---|---|
| 206C(1G) - LRS remittance & overseas tour package | Rs. 7 lakh | Rs. 10 lakh |
| 206C(1G) - LRS remittance for education (via loan) | Rs. 7 lakh | Exempt from TCS |
| 206C(1H) - Purchase of goods | Rs. 50 lakh | Exempt from TCS |
Note: Other TCS provisions remain unchanged.
Updated Tax Return Filing (ITR-U) - The deadline for filing an Updated Tax Return has been extended from 12 months to 48 months (4 years) from the end of the relevant assessment year. The additional tax liability based on the timeline is:
| Timeframe for Filing ITR-U | Additional Tax (% of tax + interest) |
|---|---|
| Within 12 months | 25% |
| Within 24 months | 50% |
| Within 36 months | 60% |
| Within 48 months | 70% |
Incentives for IFSC (International Financial Services Centre) - The sunset date for IFSC unit operations eligible for tax concessions has been extended to 31st March 2030. Premiums paid on life insurance policies from IFSC offices by non-residents are now fully exempt under Section 10(10D), with no cap on the premium amount.
Tax Exemptions for Start-ups - Under Section 80-IAC, start-ups incorporated before 1st April 2030 can avail 100% deduction of profits for three consecutive years within the first ten years of incorporation, subject to certain conditions.
Omission of Sections 206AB & 206CCA - To reduce compliance burdens, Sections 206AB and 206CCA of the Income Tax Act, 1961, will be omitted effective April 2025.
Deduction on Remuneration Paid to Partners - Section 40(b) applicable for FY 2024-25, mind it - The maximum allowable deduction for partner remuneration is now structured as follows:
| Book Profit | Deduction Limit |
|---|---|
| First Rs. 6,00,000 | Rs. 3,00,000 or 90% of book profit, whichever is higher |
| Balance book profit | 60% of book profit |
Note: This point is added here as there is lot of video and article roaming around stating that this change is applicable from 01.04.2025 but mind it this change is also applicable for Financial Year 2024-25
Treatment of ULIPs as Capital Gains - ULIPs with annual premiums exceeding 10% of the assured amount or Rs. 2.5 lakh will now be taxed as capital gains.
Changes in Deemed Let-Out Property Rules - Previously, the annual value of up to two self-occupied properties was deemed NIL only if the owner was unable to reside there due to work-related relocation. Now, up to two house properties can be deemed self-occupied with NIL taxable value without any specific conditions.
Tax laws and thresholds change frequently. This article reflects the rules in force when it was written - please confirm current provisions before relying on it, or get in touch for up-to-date advice.