The Union Budget 2025 has brought significant revisions to the income tax structure, aiming to address long-standing demands of middle-class taxpayers, particularly salaried individuals. The newly proposed tax slabs and rebate enhancements are expected to provide substantial relief, making taxation more streamlined and beneficial for the majority.
REVISED INCOME TAX SLABS
The proposed tax slabs under the new regime are as follows:
• Income up to Rs 4 lakh – Nil
• Rs 4-8 lakh – 5%
• Rs 8-12 lakh – 10%
• Rs 12-16 lakh – 15%
• Rs 16-20 lakh – 20%
• Rs 20-24 lakh – 25%
• Above Rs 24 lakh – 30% (plus applicable cess and surcharge)
Currently, the tax slabs under the new regime are:
• Income up to Rs 3 lakh – Nil
• Rs 3-7 lakh – 5%
• Rs 7-10 lakh – 10%
• Rs 10-12 lakh – 15%
• Rs 12-15 lakh – 20%
• Above Rs 15 lakh – 30%
ENHANCED REBATE UNDER SECTION 87A
The budget proposes an increase in the income cap for availing the rebate under Section 87A from Rs 7 lakh to Rs 12 lakh, while the rebate amount will rise from Rs 25,000 to Rs 60,000. This effectively means that individuals earning up to Rs 12 lakh annually (or Rs 1 lakh per month) will not have to pay any income tax under the new regime, excluding special rate income such as capital gains.
Additionally, salaried taxpayers can benefit from the standard deduction of Rs 75,000, pushing the tax-free income threshold to Rs 12.75 lakh.
Recent data suggests that 78% of taxpayers have already transitioned to the new tax regime. With these latest reforms, the government anticipates an even greater shift towards the default new regime.
TDS AND TCS RATE RATIONALISATION
The government has proposed selective rationalisation of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rates, which include:
• Senior Citizens’ Interest Income – The tax deduction threshold will be increased from Rs 50,000 to Rs 1 lakh.
• TDS on Rent – The annual exemption cap will rise from Rs 2.40 lakh to Rs 6 lakh.
• TCS on Foreign Remittances – The threshold cap will increase from Rs 7 lakh to Rs 10 lakh.
Additionally, the higher 20% TDS deduction will now apply only in cases where the PAN is inoperative, ensuring that compliant taxpayers do not face undue deductions. These adjustments are expected to ease compliance burdens for taxpayers.
UPDATED TAX RETURN FILING WINDOW EXTENDED TO 4 YEARS
Currently, taxpayers can file an updated return within 24 months from the end of the relevant assessment year, provided it results in additional tax payments. The new proposal extends this window to 48 months, offering taxpayers more flexibility to rectify their tax filings and remain compliant.
The Union Budget 2025’s tax reforms reflect a concerted effort to reduce the financial strain on taxpayers while simplifying the taxation process. These changes mark a significant shift in the government's approach to personal taxation, with a clear emphasis on inclusivity and fairness.
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