Big tax relief in Budget 2025: Who gains and what changes?

Finance Minister Nirmala Sitharaman presented the Union Budget 2025 on February 1, introducing a series of tax reforms, aimed at fostering economic growth, simplifying tax compliance, and providing relief to individuals and businesses. With a focus on enhancing ease of doing business, driving employment, and encouraging investment, these reforms strive to create a more efficient and equitable tax system.

This article provides an in-depth analysis of the major tax changes proposed in Budget 2025, their implications, and the potential impact on taxpayers and the broader economy.

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Huge relief to middle-income earners...

The government has proposed to increase the tax rebate available to individual taxpayer opting for the new tax regime. Tax rebate is a form of discount applicable on income falling within a certain tax bracket.

However, if your income exceeds the specified bracket, a rebate would not be available and normal tax rates as per the slab would apply to the entire reported income. The government has effectively reduced the tax liability of individuals earning income up to INR 12 lakhs and opted for the new tax regime to “Zero”. Even for individuals earning over INR 12 lakh, applicable slab rates have been widened such that the taxpayer earning salary income of INR 25 lakhs will end up getting a tax relief of about of INR 1.10 lakhs. 

 

Tax holiday extended for startups

To support the Indian start-up ecosystem, the eligibility period for tax holiday is proposed to be extended by five years to start-ups incorporated before April 1, 2030, will now continue to qualify for the available benefits, ensuring continued encouragement to the startup ecosystem.

Easing burden of small charitable trusts

To ease compliance burden of small charitable trusts and institutions, the validity of registration is proposed to be extended from 5 years to 10 years. Additionally, it has been proposed that certain minor defaults will not result in penalty consequences for charitable entities.

Simplified presumptive tax regime for non-resident engaged in providing services for electronics manufacturing facility

In order tofurther promote electronic manufacturing industry in India, the government has proposed to introduce a new presumptive taxation regime for non-residents engaged in the business of providing services ortechnology, subject to certain conditions. Under the proposed presumptive regime, only 25% of the gross receipts by the non-resident will be considered as profits, on which tax would be payable. 

Buying houses not to create a Significant Economic Presence 

With an aim to align the concept of Significant Economic Presence (SEP) with the concept of ‘business connection’, the government has proposed that buying houses in India (who are only involved in sourcing from India) will not be considered to establish SEP in India.

Updated Tax Return can be filed within 48 months

The government has extended the facility of filing updated returns to 48 months. This facility was earlier limited to filings within 24 months. Additional taxes to be paid would be as follows-
•    Updated return filed between 24 to 36 months: Additional tax of 60%
•    Updated return filed between 36 to 48 months: Additional tax of 70%

TDS/TCS Rationalisation

The proposals to revise TDS and TCS thresholds bring much-needed relief to taxpayers. Doubling the tax-free interest income limit for senior citizens enhances their financial security, while raising the TDS threshold for rental income to INR 50,000 per month reduces compliance burdens on tenants.
Furthermore, the increased TCS exemption for remittances under the Liberalised Remittance Scheme benefits individuals making significant cross-border transactions, especially for education and investment.

Removing TCS on education loans further eases financial strain on students, while exempting TCS on goods where TDS applies will prevent unnecessary litigations.

Additionally, the government has also proposed to remove the requirement of deducting TDS/TCS at a higher rate in case of return non-filers. 

Push to International Financial Services Centres (IFSCs)

IFSC is a jurisdiction that provides financialservices to non-residents and residents, to the extent permissible under the currentregulations. However, such financial services should involve transaction in any currencyexcept Indian Rupee. In India, government has notified GIF-Tec City in Gandhinagar to be an IFSC. 

In order to further promote IFSC in India, the government has proposed to extend sunset dates for commencement of operations of IFSC units for several taxconcessions, or relocation of funds to IFSC, etc. to 31 March 2030.

Further tax concessions have been extended to units in IFSC engaged in ship leasing business also.
Preventing evergreening of losses in case of amalgamation

Under the Income tax Act, in case of amalgamation, the accumulated loss of the amalgamating entity (predecessor company) can be carried forward for 8 years from the year in which the amalgamation is recognised. The present provisions may result in indefinite carry forward of losses if there is a seriesor chain of amalgamation.

It is proposed that loss of the predecessor entity will be allowed to be carried forward for 8 years from the year in which such loss was first computed forthe predecessor entity. 

Conclusion

Budget 2025 prioritises taxpayer convenience, increase of consumption, investment promotion, and socio-economic inclusivity. Key measures include significant relief for middle-income earners, enhanced incentives for manufacturing and infrastructure, and rationalized compliance thresholds. However, stricter monitoring of high-value transactions, such as crypto assets and ULIPs, underscores the government's commitment to transparency.

Rakesh Nangia, Chairman and Vishwas Panjiar, Partner, Nangia Andersen LLP