With the commencement of new financial year 2025-26, several new income tax rules have become effective from 1st April 2025. Awareness of these changes is crucial. These new rules determine the tax payable on income earned during FY 2025-26 and influence how tax is deducted at source (TDS) from income like salary and interest. Eleven important income tax law changes effective from this date are outlined below.
1. Revised Income Tax Slabs Under New Regime
New income tax slabs are introduced for the new tax regime in FY 2025-26. A peak tax rate of 30% is applicable for income exceeding Rs 24 lakh. The revised slabs are as follows:
> Rs 0 – 4,00,000: 0%
> Rs 4,00,001 – 8,00,000: 5%
> Rs 8,00,001 – 12,00,000: 10%
> Rs 12,00,001 – 16,00,000: 15%
> Rs 16,00,001 – 20,00,000: 20%
> Rs 20,00,001 – 24,00,000: 25%
> Above Rs 24,00,001: 30%
2. Zero Tax Liability on Income Up to Rs 12 Lakh (New Regime)
Zero tax is announced on income up to Rs 12 lakh for FY 2025-26. This benefit is exclusively available to individuals opting for the new tax regime.
This zero tax liability arises from a tax rebate provided under Section 87A of the Income Tax Act, 1961. Importantly, an Income Tax Return (ITR) must still be filed to claim this rebate, even if taxable income is below Rs 12 lakh.
3. Taxation Changes for Specific ULIPs
The taxation framework for certain Unit-Linked Insurance Plans (ULIPs) has been modified. Proceeds from ULIPs not exempt under Section 10(10D) will now be treated as capital assets.
> Such ULIPs will fall under the definition of equity-oriented funds.
> Gains from these non-exempt ULIP proceeds will be taxed as capital gains.
> Short-term capital gains will be taxed at 20%.
> Long-term capital gains will be taxed at 12.5% (without indexation benefit).
ULIP proceeds remain tax-exempt under Section 10(10D) if the aggregate annual premium paid does not exceed Rs 2.5 lakh. These new tax rules are applicable from FY 2025-26.
4. Rationalisation of TDS Rates and Thresholds
Amendments have been made to certain Tax Deducted at Source (TDS) provisions, involving rate rationalisation and increased applicability thresholds.
> TDS Rate Reduction (Section 194LBC): The TDS rate on income paid by a securitisation trust to resident investors is reduced. From April 1, 2025, a uniform TDS rate of 10% will apply, replacing the earlier rates of 25% (Individuals/HUFs) and 30% (others).
> Threshold Hikes for Various TDS Sections: Threshold limits for TDS applicability under several sections are increased from April 1, 2025. This adjustment aims to leave more funds accessible to taxpayers. Key changes include:
| Section | Nature of Payment | Current Threshold | New Threshold |
|---|---|---|---|
| 193 | Interest on Securities | Nil | Rs 10,000 |
| 194A | Interest (Other than Securities) | Bank: Rs 50K (Sr. Citizen), Rs 40K (Others); Other Cases: Rs 5K | Banks: Rs 1 Lakh (Sr. Citizen), Rs 50K (Others); Other Cases: Rs 10K |
| 194 | Dividend (Individual Shareholder) | Rs 5,000 | Rs 10,000 |
| 194K | Income from Mutual Fund Units etc. | Rs 5,000 | Rs 10,000 |
| 194B | Lottery/Crossword Winnings | Aggregate > Rs 10,000 (FY) | Rs 10,000 (Single Transaction) |
| 194BB | Horse Race Winnings | Aggregate > Rs 10,000 (FY) | Rs 10,000 (Single Transaction) |
| 194D | Insurance Commission | Rs 15,000 | Rs 20,000 |
| 194G | Lottery Ticket Commission/Prize | Rs 15,000 | Rs 20,000 |
| 194H | Commission or Brokerage | Rs 15,000 | Rs 20,000 |
| 194-I | Rent | Rs 2,40,000 (FY) | Rs 50,000 (Per Month/Part Month) |
| 194J | Professional/Technical Fees | Rs 30,000 | Rs 50,000 |
| 194LA | Enhanced Compensation | Rs 2,50,000 | Rs 5,00,000 |
5. Removal of Higher TDS/TCS Rates for ITR Non-Filers
The provision mandating higher rates of TDS (Section 206AB) and Tax Collected at Source (TCS) (Section 206CCA) for specified non-filers of ITRs has been omitted. This change is effective from April 1, 2025.
Consequently, higher TDS/TCS rates will no longer be applied based on ITR filing status for previous years. This measure aims to reduce the compliance burden on deductors/collectors.
6. Section 80CCD Deduction for NPS Vatsalya Contributions
Contributions made to the NPS Vatsalya scheme are now eligible for deduction under Section 80CCD of the Income Tax Act. This deduction can be claimed by individuals, but only if they opt for the old tax regime.
7. Increased Limits for Medical Treatment Perquisites
Thresholds for tax-free perquisites related to medical treatment for salaried employees have been increased. Effective April 1, 2025, employer expenditure on employee (or family member) travel outside India for medical treatment will be eligible for higher tax-free limits.
8. Simplified Calculation of Annual Value for Self-Occupied Property
The method for calculating the annual value of self-occupied house property for income tax purposes has been simplified. Taxpayers can now claim the annual value of any two self-occupied properties as ‘nil’. This amendment simplifies ITR filing for property owners without changing the two-property limit itself.
9. Exemption from Prosecution for Certain Delayed TCS Payments
Protection from prosecution for delayed payment of TCS is provided in specific circumstances, starting April 1, 2025. Prosecution will not be initiated if the TCS amount collected has been paid to the credit of the Central Government before the due date for filing the relevant quarterly TCS statement.
10. Extended Deadline for Filing Updated ITR
The timeframe for filing an Updated Income Tax Return (ITR-U) has been extended. Effective April 1, 2025, taxpayers will have 48 months from the end of the relevant assessment year to file an updated return. This extends the previous window of 24 months.
11. Comparative Analysis of ITRs for Irregularities
From April 1, 2025, the Income Tax Department is empowered to compare a taxpayer’s current year ITR with previous years’ ITRs to identify potential irregularities. Specific details regarding the types of irregularities to be checked under this provision are yet to be specified by the department.
Taxpayers and professionals can familiarise themselves thoroughly with the above changes. Ensuring accurate compliance and incorporating these updates into personal financial planning is recommended for the new fiscal year. Staying informed about these regulations is key to navigating the tax landscape effectively and managing financial obligations correctly under the updated legal framework. (ET)
Disclaimer:
The information presented in this blog post is intended for general informational purposes only. Readers are strongly advised to consult with a qualified tax professional or advisor for personalized guidance specific to their situation before making any financial decisions or taking any action based on this information. Always refer to official government notifications and statutes for definitive guidance.