Income Tax Proposals in Budget 2025-26

Income Tax Proposals in Budget 2025-26

1. Personal Income Tax Reforms (Focus on Middle-Class)

Increase in Tax-Free Income Limit:

No tax payable on income up to ₹12 lakh under the new regime.

For salaried individuals, ₹12.75 lakh tax-free due to a ₹75,000 standard deduction.

Revised Tax Slabs under the New Tax Regime:

₹0 - ₹4 lakh → Nil

₹4 - ₹8 lakh → 5%

₹8 - ₹12 lakh → 10%

₹12 - ₹16 lakh → 15%

₹16 - ₹20 lakh → 20%

₹20 - ₹24 lakh → 25%

Above ₹24 lakh → 30%

Illustrative Tax Savings:

Income of ₹12 lakh → Tax savings of ₹80,000 (100% of previous tax).

Income of ₹18 lakh → Tax savings of ₹70,000 (30% reduction).

Income of ₹25 lakh → Tax savings of ₹1,10,000 (25% reduction).

2. TDS & TCS Rationalization

Higher TDS Limits:

Senior Citizens' Interest Income: Exemption limit doubled from ₹50,000 to ₹1 lakh.

TDS on Rent: Exemption limit increased from ₹2.40 lakh to ₹6 lakh.

TCS on LRS (Liberalized Remittance Scheme): Threshold increased from ₹7 lakh to ₹10 lakh.

TCS on Education Remittance: Removed if remittance comes from a loan.

TCS on Sale of Goods: Removed to simplify compliance.

Higher TDS Deduction Rules will now only apply to non-PAN holders.

3. Encouraging Voluntary Compliance

Updated Return Filing Time Extended:

Taxpayers can file updated returns up to 4 years (previously 2 years).

Nearly 90 lakh taxpayers have voluntarily updated incomes since 2022.

4. Reducing Compliance Burden

Relaxation for Charitable Trusts & Institutions:

Registration validity increased from 5 years to 10 years.

Minor defaults (e.g., incomplete applications) will not attract severe penalties.

Self-Occupied Property Taxation:

Two self-occupied properties can now be declared tax-free without conditions.

5. Business & Investment Taxation

Transfer Pricing Simplification:

3-year block pricing scheme introduced for international transactions.

Safe Harbour Rules expanded to provide certainty & reduce litigation.

Retirement & Pension Reforms:

Withdrawals from National Savings Scheme (NSS) made tax-free.

NPS Vatsalya Accounts will get similar benefits as regular NPS accounts.

6. Investment & Employment Incentives

Electronics Manufacturing Tax Benefits:

Presumptive taxation for non-residents providing services to electronics manufacturers.

Safe Harbour rules for non-residents storing components for supply to Indian firms.

Tonnage Tax for Inland Vessels:

Tonnage tax scheme extended to inland water vessels (previously only for sea-going ships).

Startups & Alternative Investment Funds (AIFs):

Startup Incorporation Tax Benefits extended till March 31, 2030.

Tax certainty for Category I & II AIFs investing in infrastructure.

Sovereign Wealth & Pension Funds: Investment tax benefits extended till March 31, 2030.

International Financial Services Centre (IFSC) Benefits:

Tax incentives for ship-leasing, insurance offices & global treasury centres in IFSC.

Tax benefits extended for activities in IFSC till March 31, 2030.

Key Takeaways

Biggest Tax Relief for Middle-Class – ₹12 lakh income tax-free.

Simplified TDS/TCS Rules to ease compliance.

Updated Return Filing Period Extended – More time for voluntary disclosures.

Startups & IFSC Get Long-Term Tax Incentives – Encouraging foreign & domestic investments.

More Flexibility for Business & International Taxation – Safe harbours & block pricing for MNCs.