Budget 2025-26: New Income Tax Laws Explained & Highlights

Proposed Changes in Income Tax Laws in Budget 2025-26 

Rates of Income Tax: Applicable for Individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person

1. No Income Tax for incomes up to ₹12 lakh annually under the new regime: For Salaried Class: Tax exemption up to ₹12.75 lakh (including ₹75,000 standard deduction)
2. The revised tax slabs under new tax regime for FY 2025-26 are as under:

In case of old tax regime there is no change in slab rates, however benefit of deduction are available under old tax regime.

3. No Exemption or deduction would be available except the following:
4. Standard Deduction u/s 16(ia) of the Act.
5. Deduction in respect of income in the nature of family pension as provided under clause (iia) of section 57 of the Act.
6. Deduction in respect of the amount paid or deposited in the Agniveer Corpus Fund as to be provided under subsection (2) section 80CCH of the Act.

Rebate u/s 87A:

The income limit for rebate under Section 87A has been increased from ₹7,00,000 to ₹12,00,000 for taxpayers opting for the new tax regime under Section 115BAC(1A). Additionally, the maximum rebate amount has been raised from ₹25,000 to ₹60,000.

Such rebate of income-tax is not available on tax on incomes chargeable at special rates (for e.g.: capital gains u/s 111A, 112 etc.)

4. Co-operative Society 

• The rates of income-tax will continue to be the same as those applicable for AY 2025-26 

Surcharge of 12% would applicable where the total income of resident Co-operative Society (except resident co-operative society opting u/s 115BAD) exceeds Rs 10.00 Crore. [Subject to Marginal Relief]. 

• If the corporative society is liable to pay tax in accordance with the provisions of section 115JC(AMT), then income tax rate is 15%.
• A co-operative society resident in India has the option to pay tax in accordance with the provisions of the section 115 BAD at the rate of income tax is 22 percent for assessment year 2021-22 or onwards.
• A new manufacturing co-operative society set up on or after 01.04.2023, which commences manufacturing or production on or before 31.03.2024 and does not avail of any specified incentive or deductions, may opt to pay tax at a concessional rate of 15%. The surcharge would be paid at 10% on such tax. 

5. Partnership Firms: The rates of income-tax will continue to be the same as those specified for Assessment Year 2025-26 i.e. a partnership firm (including LLP) is taxable at 30%. 

• Surcharge of 12% would continue to be applicable where the total income of firm exceeds Rs 1.00 Crore. [Subject to Marginal Relief*]
• Health & Education cess as applicable. 

6. Companies: The tax rate of domestic companies remain unchanged and income of companies will be taxed at same rate applicable in FY 2024-25. 

7. Tax relief on a second self-occupied house

Earlier, only one self-occupied house was considered as tax-free, while the second house was taxed based on its notional rental value. From April 1, 2025, both self-occupied properties will be tax-free. 

This removes tax on notional rental income, benefiting taxpayers with multiple properties. 

8. TDS and TCS simplifications 

2. Increased the TDS threshold on rent from ₹2.40 lakh to ₹6 lakh per year. Earlier 10% TDS was required to be deducted if rent paid exceed Rs. 2.40 lacs. This is applicable for businesses liable to deduct TDS.
3. Increase in TCS threshold on LRS: Raised the TCS exemption limit on Liberalised Remittance Scheme (LRS) transactions from ₹7 lakh to ₹10 lakh, a big relief for taxpayer sending money to their relative in foreign country.
4. No TCS on Foreign remittances: Removed TCS on education-related remittances when the funds come from an education loan from financial institution.
5. Increase in TDS threshold on Interest Income: The limit for TDS on interest income earned by senior citizen has been increased from Rs. 50,000 to Rs. 1 Lacs.
6. No TCS on sale of Goods: Section 194Q of the Act, requires any person being a buyer, to deduct tax at the rate of 0.1%, on payment made to a resident seller, for the purchase of any goods of the value or aggregate of value exceeding Rs.50 lakhs in any previous year. Whereas, as per section 206C(1H), a seller was also required to collect tax from the buyer at the rate of 0.1% of the sale consideration exceeding Rs.50 lakhs. This resulted in both TDS and TCS being made applicable on same transaction. Section 206C(1H) is proposed to be deleted hence only buyer is required to deduct tax at the rate of 0.1% on payment made to a seller for the purchase of any goods of the value or aggregate of value exceeding Rs.50 lakhs in any previous year.

9. Extended time to file updated ITR from 2 years to 4 years

Taxpayers will now have four years (instead of two) to file an updated Income Tax Return (ITR). This provides more time for individuals to correct errors and disclose missed income by filing updated returns.

• No Tax on NSS Withdrawals by Senior Citizen

With effect from August 29, 2024, senior citizens with old National Savings Scheme (NSS) accounts will not be taxed on withdrawals.

11. Unit Linked Insurance Premium (ULIP) taxation changes 

2. ULIPs with annual premiums above ₹2.5 lakh will be taxed as capital gains instead of income. Long-term capital gains (holding period over one year) will be taxed at 12.5%.

1. Earlier, ULIPs were taxed as income from other sources, with rates as high as 30%. This helps in removing past uncertainties at the time of maturity of ULIP’s.

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

THANK YOU

Prepared by: Team “Taxcellent”

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