Tax slabs, rebates, TDS limits: Major income tax changes effective from April 1, 2025; check details

The Union Budget 2025 unveiled a series of significant amendments to the Income Tax Act of 1961, which are set to take effect from 1st April 2025, marking the start of FY 2025-26. These modifications aim at simplifying the tax structure, enhancing disposable income, and fostering economic growth by bolstering consumption and encouraging manufacturing sectors. 

New tax slabs

How much tax do I have to pay? Calculate now

The revised income tax structure will introduce updated tax brackets starting from April 1, 2025. Individuals earning up to Rs 12 lakh annually will be exempt from paying taxes under the new regime. Besides, salaried workers will be eligible for a standard deduction of Rs 75,000. This means that salary income up to Rs12.75 lakh can now be exempt from taxes. However, this exemption only applies to those who opt for the new system.

Some individuals may prefer the old tax regime due to the various deductions and exemptions it provides in specific situations.

Notably, the new tax regime under Section 115BAC has revised tax slab rates, designed to improve individual savings and spending power. The changes will apply to income earned from FY 2025-26 onwards, offering substantial relief to taxpayers across various demographics, including salaried individuals, business owners, and startup founders. The revised tax slabs range from nil for earnings up to Rs 4 lakh to 30% for income exceeding Rs 24 lakh.

Rebate under Section 87A

Among the notable changes, the rebate under Section 87A has been increased to Rs 60,000 from the prior Rs 25,000 for taxpayers opting for the New Tax Regime. This enhancement effectively means individuals with an income of up to Rs 12 lakhs will not have any tax liability under this regime, thereby increasing the threshold for tax-free income. 

Such initiatives aim to invigorate the economy by encouraging more consumer spending, which is crucial for sustained economic progress. Additionally, the Old Tax Regime remains optional for those preferring the previous structure.

Tax Deduction at Source

Tax Deduction at Source (TDS) regulations have also been updated, with increased threshold limits across various sections to minimise unnecessary deductions and improve cash flow for taxpayers. For instance, the TDS limit on interest income for senior citizens has been doubled to Rs 1 lakh, augmenting financial security for the elderly. Similarly, the exemption limit on rental income has been lifted to Rs 6 lakh annually, reducing administrative burdens for landlords and potentially stimulating the rental market in urban regions. These changes reflect the government’s intent to ease financial strains on individuals and businesses while ensuring smooth cash flows.

Updated Tax Return

The Union Budget further extends the timeline for filing an Updated Tax Return (ITR-U) from 12 months to 48 months past the relevant assessment year, allowing taxpayers a more extended period to comply with tax obligations without incurring steep penalties. This move is anticipated to alleviate taxpayer anxiety regarding inadvertent delays in return filings. Additionally, start-ups incorporated before 1st April 2030 can benefit from a 100% deduction of profits for three out of ten years, an effort to encourage entrepreneurship and innovation within the Indian economy. 

Let-out properties

Moreover, the Finance Bill 2025 has introduced changes concerning deemed let-out properties, allowing individuals to declare up to two house properties as self-occupied with a NIL income condition, regardless of occupation reasons. This amendment offers increased flexibility for taxpayers owning multiple properties. With the omission of Sections 206AB and 206CCA, the compliance burden on tax deductors and collectors is expected to decrease significantly. These income tax adjustments are pivotal in heightening India’s attractiveness as an investment destination while promoting an equitable tax environment.