Income Tax Updates Effective April 2025: Major Changes and New Rules

Revised Income Tax Slabs for FY 2025-26 (AY 2026-27)
The Union Budget 2025 introduced updated tax slab rates under Section 115BAC, which governs the New Tax Regime (also known as the Default Tax Regime). The changes aim to improve savings and increase the spending capacity of individuals. These revised slabs will apply to income earned in FY 2025-26 and onwards.

Here are the new income tax slabs for FY 2025-26:

Note: The tax slabs under the Old Tax Regime (Optional Regime) will remain unchanged.

Increased Rebate Under Section 87A
For taxpayers opting for the New Tax Regime, the rebate under Section 87A has been significantly increased to Rs. 60,000, up from the previous Rs. 25,000. This allows individuals earning up to Rs. 12 lakh to have no tax liability under the New Tax Regime.

However, the rebate for taxpayers choosing the Old Tax Regime remains unchanged at Rs. 12,500.

Changes in Tax Deduction at Source (TDS)
Several revisions have been made to the TDS provisions, effective from April 2025. These changes include increased threshold limits for various TDS sections, benefiting both individuals and businesses. For instance, the TDS threshold for interest income for senior citizens has increased to Rs. 1 lakh, up from Rs. 50,000. Below are the updated TDS thresholds for various sections:

Note: Other TDS sections will retain their previous limits.

Changes in Tax Collected at Source (TCS)
The following changes will be effective from April 2025:

Updated Tax Return: ITR-U
The deadline for filing an Updated Tax Return (ITR-U) has been extended from 12 months to 48 months (4 years) from the end of the relevant assessment year. This extension encourages taxpayers to disclose any previously undisclosed income and pay the appropriate taxes.

The additional tax liability for filing ITR-U is as follows:

Extension of Tax Concessions for IFSC Units
The sunset date for the commencement of operations of units in the International Financial Services Centre (IFSC) eligible for tax concessions has been extended to 31st March 2030.

Life Insurance Exemptions for Non-Residents
Premiums paid on life insurance policies purchased from an IFSC office by non-residents will be fully exempt under Section 10(10D), with no upper limit on the premium amount.

Tax Exemption for Start-ups
Start-ups incorporated before 1st April 2030 will be eligible for a 100% deduction on profits and gains for three consecutive years within a ten-year period under Section 80-IAC, provided they meet specific conditions.

Omission of Sections 206AB and 206CCA
From April 2025, Sections 206AB and 206CCA will be omitted to ease the compliance burden on tax deductors and collectors. These sections required tax deductors to verify whether recipients had filed tax returns, causing delays and increasing compliance.

Enhanced Deduction on Remuneration Paid to Partners
The deduction limit for remuneration paid to partners by partnership firms and LLPs has been increased, allowing higher deductions for tax purposes.

Treatment of ULIPs as Capital Gains
Proceeds from Unit Linked Insurance Plans (ULIPs) will be treated as capital gains if the annual premium exceeds 10% of the assured amount or Rs. 2.5 lakhs.

Relaxation of Deemed Let-Out Property Provision
The Finance Bill 2025 relaxes provisions for self-occupied properties. Individuals can now claim up to two house properties as self-occupied, regardless of the reason for non-occupation, simplifying the determination of deemed let-out property.

End of Equalisation Levy (EL)
Starting April 2025, the Equalisation Levy (EL) on online advertisements will be abolished. This 6% levy on non-residents for online ad services, and the 2% levy on non-resident e-commerce operators, will no longer apply.