Income Tax Changes From 1st April 2025: New Income Tax Rules for FY 2025-26

Budget 2025 has emerged as a game-changer for Indian taxpayers and the tax system as a whole. It aims to streamline India's tax system through some key amendments to the Income Tax Act 1961. Notably, these new rules will be applicable from April 1, 2025, which means that they will take effect in FY 2025–2026. We will list these new Income Tax rules below. 

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Table of Contents

• New Income Tax Slabs to be Applicable for FY 2025-26 (AY 2026-27)

• Increased Rebate Under Section 87A

• Higher TDS Thresholds

• Updates to Tax Collected at Source (TCS)

• Time Limit Extension for Tax Return

• Benefits for International Financial Services Centre (IFSC)

• Startups Exemption from Taxes

• Omission of Section 206AB and Section 206CCA

• Higher Deduction on Remuneration to Partners

• Treatment of ULIPs as Capital Gains

• Relaxation Of Deemed Let-Out Property Provision

• Treatment of Equalisation Levy

• Tax Savings on NPS Vatsalya

• Conclusion

• Frequently Asked Questions

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New Income Tax Slabs to be Applicable for FY 2025-26 (AY 2026-27)

Under Section 115BAC, often known as the New Tax Regime, the Budget 2025 proposes new tax slab rates. The purpose is to ensure that taxpayers could save more money, meaning they will have more money to spend. From. The following table highlights the updated slab rates for FY 2025–2026:

Income Tax Slabs	Income Tax Rates
Upto Rs.4 lakh	NIL
Rs. 4 lakh - Rs.8 lakh	5%
Rs.8 lakh - Rs.12 lakh	10%
Rs.12 lakh - Rs.16 lakh	15%
Rs.16 lakh - Rs.20 lakh	20%
Rs.20 lakh - Rs.24 lakh	25%
Above Rs.24 lakh	30%

It is to be noted that the slab rates as per the Old Tax Regime, which is also the optional regime, remain unaltered.

Increased Rebate Under Section 87A

Those filing tax returns under the New Tax Regime will be entitled to a higher rebate under Section 87A. This has been raised from Rs. 25,000 to Rs. 60,000. As per the new rule, Rs. 12 lakhs in tax-free income is now what a taxpayer gets. Accordingly, under the new tax regime, people earning up to Rs. 12 lakh will no longer have to pay any taxes. For taxpayers who choose to use the Old Tax Regime, the refund is still Rs. 12,500.

Higher TDS Thresholds

Significant modifications to the TDS provisions will take place from April 2025. It was suggested that threshold levels for different TDS sections be raised for both people and companies. The table below lists the improved threshold limits for the several TDS sections. The TDS thresholds for the following sections were increased with effect from April 2025:

Section	Before 1st April 2025	From 1st April 2025
Section 193 - Interest on securities	NIL	10,000
Section 194A - Interest other than interest on securities	Senior citizens- Rs. 50,000Others when payer is the bank, cooperative society, and post office- Rs. 40,000Other cases- Rs. 5000	Senior citizens- Rs. 1,00,000Others when payer is the bank, cooperative society, and post office- Rs. 50,000Other cases- Rs. 10,000
Section 194 – Dividend, for an individual shareholder	Rs. 5,000	Rs. 10,000
Section 194K - Income in respect of mutual fund units	Rs. 5,000	Rs. 10,000
Section 194B - Winnings from lottery, crossword puzzle Section 194BB - Winnings from horse race	Aggregate of amounts more than Rs. 10,000 during the financial year	Rs. 10,000 for a single transaction
Section 194D - Insurance commission	Rs. 15,000	Rs. 20,000
Section 194G - Income from commission, prize etc. on lottery tickets	Rs. 15,000	Rs. 20,000
Section 194H - Commission or brokerage	Rs. 15,000	Rs. 20,000
Section 194-I - Rent	Rs. 2,40,000 (in a financial year)	Rs. 50,000 per month
Section 194J - Fee for professional or technical services	Rs. 30,000	Rs. 50,000
Section 194LA - Income by way of enhanced compensation	Rs. 2,50,000	Rs. 5,00,000
Section 194T - Remuneration, Interest and Commission paid to partners	NIL	Rs. 20,000

Updates to Tax Collected at Source (TCS)

The previous limit of Rs. 7 lakhs will be raised to Rs. 10 lakhs as the threshold for withholding TCS for international remittances through LRS. Furthermore, when student loans are remitted from a financial institution, there won't be any TCS. In the past, if the remittance exceeded Rs. 7 lakhs, a 0.5% TCS was applied. Section 206C(1H), which mandated that sellers collect TCS on sales of items valued at more than Rs. 50 lakhs, has been repealed and will no longer be in effect as of April 1, 2025. The table below shows the TCS modifications under the new rules:

Section	Before 1st April 2025	From 1st April 2025
Section 206C(1G) – Remittance under LRS and overseas tour programs	Rs. 7 Lakhs	Rs. 10 Lakhs
Section 206C(1G) - Remittance under LRS for education (funded through education loans)	Rs. 7 Lakhs	Nil (No TCS Applicable)
Section 206C(1H) - Purchase of Goods	Rs. 50 Lakhs	Nil (No TCS Applicable)

Time Limit Extension for Tax Return

The 12-month period from the end of the relevant assessment year to the 48-month (4-year) period for filing an Updated Tax Return has been extended. The purpose of this extension was to incentivize people to reveal any previously unreported income and pay the appropriate taxes on it. Depending on the filing of an updated return, the increased tax liability is as follows:

Filing Timeline for ITR-U (from the end of the relevant AY)	Additional Tax (tax + interest)
12 months	25% of additional tax
24 months	50% of additional tax
36 months	60% of additional tax
48 months	70% of additional tax

Benefits for International Financial Services Centre (IFSC)

The deadline for the start of IFSC units' tax concession activities has been extended to March 31, 2030. No maximum premium amount is applicable. Also, Section 10(10D) totally exempts the premium paid on a life insurance policy by non-residents which has been obtained from an IFSC office.

Startups Exemption from Taxes

Startups incorporated prior to April 1, 2030, are entitled to deduct 100% of their profits for three of the ten years after the year of incorporation as per Section 80-IAC. This provision, however, is subject to specific requirements.

Omission of Section 206AB and Section 206CCA

To cut the cost of compliance on both tax deductors and collectors, Sections 206AB and 206CCA will be eliminated under the new rules. In the past, deductors and collectors had to ascertain if the recipient had filed tax returns in order to calculate the appropriate withholding tax. This was a burden since it led to higher rates, compliance load, capital blockage, and delays in completing TDS and TCS return statements.

Higher Deduction on Remuneration to Partners

Additionally increased is the maximum deduction that partnership businesses and limited liability partnerships can claim for partner compensation. In order to accommodate larger deductions during tax computation, the calculation limits were changed. The maximum deduction for partners' compensation paid will be determined as follows:

Book Profit	Limit
First Rs.6,00,000 of book profit/loss	The higher of Rs.3,00,000/90% of the book profit
Remaining balance of book-profit	60% of the book-profit

Treatment of ULIPs as Capital Gains

ULPI revenues that surpass 10% of the total assured or Rs. 2.5 Lakhs per year will be considered  capital gains and subject to the appropriate taxation rate (20% for STCG and 12.5% for LTCG). For ULIP proceeds, the exemption under section 10(10D) will remain in effect if the yearly premium is less than Rs. 2.5 lakhs, or 10% of the total insured.

Relaxation Of Deemed Let-Out Property Provision

In the past, the annual value of up to two self-occupied properties was regarded as NIL if the owner was unable to occupy the property due to job, business, or professional obligations in another location. It is now recommended that the annual worth of up to two house properties should be zero if the owner resides there for personal use or is unable to do so for any reason. The Finance Bill 2025 relaxed the criteria for deciding on what constitutes a let-out property by letting individuals claim up to two residential units as self-occupied and declare NIL income on these properties without any limitations.

Treatment of Equalisation Levy

The Equalisation Levy (EL) on internet ads will be eliminated as of April 2025. This levy was previously applied at a rate of 6% to the sum that a non-resident received or owed for services related to online advertising. Furthermore, the 2% charge that was also applied to non-resident e-commerce operators was eliminated in 2024.

Tax Savings on NPS Vatsalya

In addition to claiming an extra deduction of Rs. 50,000 under the old regime, salaried employees and other taxpayers are now permitted to contribute to their children's NPS Vatsalya account as of this financial year. This action secures the child's financial future while offering additional tax savings.

Conclusion

Although your ITR filing for FY 2025–2026 will be greatly impacted by the revisions in Budget 2025, you need not be worried about your ITR filing for FY 2024–2025 as it will be based on the previous restrictions and provisions. The aforementioned adjustments are essential for FY 2025–2026 and must be taken into account in order to appropriately plan for taxes and finances for the year.

Frequently Asked Questions

What is the new income tax law 2025?

In FY 2024-25 (AY 2025-26), salaried workers having a total taxable salary of up to Rs. 7.75 lakh would pay no taxes under the new tax regime. This is because of the standard deductions and the possible rebate.

What is the new income tax rule?

Under the new tax regime, the government has implemented a revamped tax slab system that totally exempted incomes up to Rs. 12 lakh from taxes.

What are some key tax modifications for FY 2025-26?

Much will change with the updates in the income tax rules in FY 2025-26. Modified tax slabs, updated ITRU deadlines, the computation of partner compensation to be deducted, and updated TDS/TCS threshold limits are a few of the key tax changes that will be applicable from April 1, 2025.

What is the rebate available under section 87A?

Taxpayers who file returns under the new tax regime starting in FY 2025–2026 are eligible for a refund of up to Rs. 60,000. A refund of up to Rs. 12,500 is available to taxpayers filing their returns under the Old Tax Regime.

Will the Old Tax Regime change?

No, nothing has changed about the Old Tax Regime. This system is still available to taxpayers who would rather claim exemptions and deductions. The lower tax slabs offered by the New Tax Regime, however, will not be advantageous to them.

What are the TDS changes for senior citizens?

For seniors, the TDS threshold for interest income under Section 194A has been raised from Rs. 50,000 to Rs. 1 lakh. Seniors can now earn more interest without having their TDS withheld thanks to this.

How have the TCS provisions changed in Budget 2025?

There have been some significant changes in the Liberalized Remittance Scheme (LRS) remittance rules. The TCS on goods purchases beyond Rs. 50 lakh has been eliminated, and the threshold has been raised from Rs. 7 lakh to Rs. 10 lakh.

What is the extension to file updated returns?

An Updated Tax Return (ITR-U) must now be filed 48 months after the end of the applicable assessment year, instead of 12 months as previously required. Depending on the filing date, the tax burden rises with the delay, from 25% to 70%.

What are the tax benefits for startups under Section 80-IAC?

If they meet certain requirements, startups that were formed prior to April 1, 2030, are eligible to receive a 100% tax deduction on profits for three of the first ten years of operation.