Budget 2025 announcements: In a significant move to support middle-class taxpayers, Finance Minister Nirmala Sitharaman introduced extensive tax reforms in the Union Budget 2025-26 through the implementation of the New Tax Regime. These reforms include raising the tax exemption limit to Rs 12.75 lakh and introducing a new tax slab of 25%, as previously anticipated.
The proposed changes to the income tax laws are scheduled to take effect in the upcoming fiscal year 2025-26, commencing on April 1, 2025, pending approval by Parliament.
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Here are the top tax-related changes
1. New exemption limit of Rs 12.75 lakh
One notable change is the announcement that individuals earning up to Rs 12 lakh will now be fully exempt from paying taxes. This measure is aimed at reducing the tax burden on the middle class and stimulating higher consumer spending.
In the New Tax Regime 2025, salaried individuals eligible for the standard deduction benefit of Rs 75,000 will not be required to pay any taxes if their gross taxable income does not exceed Rs 12.75 lakh. Under the current income tax laws, individuals can avail of zero tax on income up to Rs 7 lakh in the new tax regime.
The Finance Minister said in Budget 2025 speech: "I am now happy to announce that there will be no Income Tax Payable up to income of 12 lakh rupees. I propose to revise tax rate structures as follows, zero to four lakh rupees nil, 4.8 lakh rupees to five four to eight lakh rupees, 5% eight to 12 lakh rupees, 10% 12 to 16 lakh rupees, 15% 16 to 20 lakh rupees, 20% 20 to 24 lakh rupees, 25% and above 24 lakh rupees, 30 lakh, 30% to taxpayers, to taxpayers up to 12 lakh of normal income, other than special grade incomes, such as capital gains."
Here are the revised tax slabs under the New Tax Regime:
The income tax rebate is only available for resident individuals. HUFs, NRIs, companies, and super senior citizens cannot claim rebate under section 87A.
Deep dive
"From assessment year 2026-27 onwards, for an assessee, being an individual resident in India whose income is chargeable to tax under the sub-section (1A) of section 115BAC, it is proposed to,–
(i) enhance the limit of total income for rebate in clause (a) and (b) of first proviso under section 87A, on which the income-tax is payable as per the rates of income-tax under sub-section (1A) of section 115BAC, from Rs. 7,00,000 to Rs. 12,00,000 and the limit of rebate in clause (a) of first proviso to section 87A from Rs. 25,000 to Rs. 60,000.
ii) (ii) rationalise the first proviso to section 87A by inserting a new proviso so as to provide that the deduction under the first proviso, shall not exceed the amount of income-tax payable as per the rates provided in sub-section (1A) of section 115BAC.
Further, as mentioned in para. 4 above, 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.).
Income tax rules on Section 87A tax rebate for FY 2025-26
| Criteria | Old Regime | New Regime |
| Eligibility | Resident Individuals with income ≤ Rs 5,00,000 | Resident Individuals with income ≤ Rs 12,00,000 |
| Maximum Rebate Amount | Rs 12,500 | Rs 60,000 |
| Taxable Income After Rebate Becomes Zero | if tax ≤ Rs 12,500 | Becomes Zero if tax ≤ Rs 60,000 |
| Conditions | Income after deductions (e.g., 80C, 80D) | Deductions not allowed under the New Regime |
New Tax slab
In accordance with the New Tax Regime, a revised rate slab has been introduced. Under this new system, individuals earning between Rs 20-24 lakh will be subject to a 25 per cent tax rate. The revised income tax slabs dictate that individuals earning over Rs 12 lakh annually will be exempt from tax for income up to Rs 4 lakh, taxed at 5 per cent for income between Rs 4-8 lakh, at 10 per cent for Rs 8-12 lakh, at 15 per cent for Rs 12-16 lakh, at 20 per cent for Rs 16-20 lakh, at 25 per cent for Rs 20-24 lakh, and at 30 per cent for income above Rs 24 lakh per annum.
TCS threshold
The TCS threshold for foreign remittances has been increased, meaning that individuals will now only face TCS deductions if their total remittance exceeds Rs 10 lakh in a financial year, up from the previous limit of Rs 7 lakh. This adjustment is anticipated to provide relief to those engaging in smaller foreign transactions, particularly for purposes such as education, travel, medical expenses, and investments.
Despite the threshold increase, the applicable TCS rates for remittances exceeding Rs 10 lakh remain the same: 5% for education and medical expenses, and 20% for foreign investments and overseas travel. The government's objective in raising the threshold is to lessen tax-related burdens on smaller transactions while maintaining compliance standards for larger international remittances.
The Reserve Bank of India's Liberalised Remittance Scheme (LRS) allows resident individuals to send money overseas for various purposes, including education, medical treatment, travel, foreign investments, and gifting.
Other highlights
> The tax deduction limit for interest income for senior citizens has been increased from ₹50,000 to ₹1 lakh, resulting in a reduction in their taxable income.
> The criminalisation of delayed payment of TCS has been revoked, with delayed payments now being treated as a civil offense.
> Taxpayers are now granted an extended period of 4 years to file Updated Income Tax Returns, as opposed to the previous 2-year limit.
> Individuals can now declare the value of up to two self-occupied properties as nil for tax purposes.
> Safe harbor rules will be broadened to reduce international tax disputes and litigation.