Key Changes in the Income Tax Regulations
The financial year 2025-26 brings with it a fresh set of rules and revisions in the realm of income tax, impacting individuals, businesses, and investors alike. Staying abreast of these changes is crucial for effective tax planning and compliance. Let's delve into the significant updates that have been introduced, offering clarity and insights into how they might affect you.
1. New Tax Regime Gets a Makeover: Revised Income Tax Slabs
The government continues to push for the adoption of the New Tax Regime by making it more attractive to taxpayers. A significant step in this direction is the revision of income tax slabs under this regime:
Up to 4 lakh (previously 3 lakh) : 0%
4 lakh to 8 lakh : 5%
8 lakh to 12 lakh : 10%
12 lakh to 16 lakh: 15%
16 lakh to 20 lakh: 20%
20 lakh to 24 lakh: 25%
Above 24 lakh: 30%
As you can see, the new slabs offer a potentially lower tax burden for many, especially those with higher income levels.
Major Relief u/s 87A
For individual taxpayers opting for the New Tax Regime, the tax rebate under Section 87A has seen a substantial increase. It has been raised from ₹25,000 to a generous ₹60,000. This effectively means that individuals with a total income of up to ₹12 lakhs under the new regime will now have zero tax liability after claiming this rebate.
It's important to note that no changes have been made to the tax slabs under the Old Tax Regime, which continues to be an option for taxpayers who prefer to avail themselves of various deductions and exemptions.
2. Enhanced Rebate Under Section 87A: More Tax-Free Income
In a significant relief, individuals with a total income of up to ₹12 lakhs under the new regime will now have zero tax liability
Furthermore, salaried individuals can rejoice as the standard deduction has been increased to ₹75,000 under the New Tax Regime. Combining this with the enhanced Section 87A rebate, the tax-free income limit for salaried individuals under the new regime can now extend up to ₹12.75 lakhs. This makes the new regime considerably more appealing for a large segment of the working population.
3. TDS Threshold Limits: A Series of Revisions
The thresholds for Tax Deducted at Source (TDS) have undergone several changes, aiming to streamline compliance and reduce the burden on smaller transactions. Here's a breakdown of the key revisions:
(i) Interest other than Interest on Securities (Section 194A):
For Senior Citizens, the threshold for TDS on interest income has been doubled from ₹50,000 to ₹1 lakh.
For others, when the payer is a bank, cooperative society, or post office, the threshold has been increased from ₹40,000 to ₹50,000.
In all other cases, the threshold remains at ₹10,000.
(ii) Dividend Income (Section 194):
The threshold for TDS on dividend income has been increased from ₹5,000 to ₹10,000.
(iii) Insurance Commission (Section 194D):
The threshold for TDS on insurance commission has been raised from ₹15,000 to ₹20,000.
(iv) Commission/Brokerage (Section 194H):
Similarly, the threshold for TDS on commission or brokerage has been increased from ₹15,000 to ₹20,000.
(v) Rent Payment (Section 194I):
A significant change here is the shift from an annual limit to a monthly limit. The threshold for TDS on rent payment has been increased from ₹2.4 lakh per financial year to ₹50,000 per month. This will impact tenants paying higher monthly rents.
(vi) Remuneration, Interest, and Commission Paid to Partners (Section 194T):
A new section, 194T, has been introduced. TDS at a rate of 10% will be deducted on remuneration, interest, and commission paid to partners if the amount exceeds ₹20,000.
Furthermore, the limit of deduction available to partnership firms and LLPs for remuneration paid to partners has also been enhanced:
On the first ₹6 lakhs of book profit: ₹3 lakhs or 90% of book profit, whichever is higher.
On the remaining book profit: 60% of book profit.
4. Changes in Tax Collected at Source (TCS)
Several adjustments have been made to the Tax Collected at Source (TCS) provisions:
(i) Remittance under Liberalized Remittance Scheme (LRS) and Overseas Tour Program Package:
The threshold for TCS on remittances under LRS (excluding education financed by loans) and overseas tour program packages has been increased from ₹7 lakhs to ₹10 lakhs.
(ii) Remittance under LRS for Education (financed through educational loans)
A significant relief for students pursuing education abroad, no TCS will be applicable on remittances under LRS if the funds are financed through educational loans. Previously, a ₹7 lakhs limit was in place.
(iii) Purchase of Goods
Another welcome change is the abolition of TCS on the purchase of goods. The previous threshold was ₹50 lakhs.
However, when you buy certain luxury goods, then 1% TCS deduction is applicable.
More information about TCS on luxury goods, Read This Blog.
5. Extended Timeline for Updated Returns (ITR-U)
Taxpayers now have more time to rectify any errors or omissions in their initially filed income tax returns. The time limit for filing an Updated Income Tax Return (ITR-U) has been extended to 48 months from the end of the relevant assessment year, subject to the payment of additional tax and interest. This provides a longer window for taxpayers to ensure accurate tax filings.
6. Boost to IFSCs: Extended Tax Concessions
The government continues its efforts to promote International Financial Services Centers (IFSCs) in India. The deadline for commencing operations in IFSCs to claim tax benefits has been extended to 31st March, 2030.
Additionally, life insurance premiums paid by non-residents in IFSCs are now fully exempt under Section 10(10D), with no cap on the premium amount. This makes IFSCs an even more attractive destination for financial activities.
7. Startup Ecosystem Gets a Longer Runway: Tax Benefits Extended
Recognizing the crucial role of startups in economic growth, the tax benefits available to them under Section 80-IAC have been extended until 31st March 2030. Startups incorporated before this date can claim a 100% deduction of their profits for three consecutive years out of the first ten years of their incorporation, subject to certain conditions. This extension provides continued support to the burgeoning startup ecosystem in the country.
8. ULIPs: Shifting from Insurance to Capital Gains
The tax treatment of Unit Linked Insurance Plans (ULIPs) has seen a significant change. The proceeds from ULIPs where the annual premium exceeds 10% of the assured amount or ₹2.5 lakhs annually will now be treated as capital gains and taxed accordingly. This brings high-value ULIPs more in line with other investment products.
9. Flexibility in Self-Occupied Property: Claim NIL Income on Two Houses
Homeowners will appreciate this change. The Finance Bill 2025 has relaxed the rules regarding deemed let-out property. Individuals can now claim up to two house properties as self-occupied and declare NIL income on these properties without any conditions. This provides greater flexibility for individuals owning multiple residential properties for their own use.
Conclusion
These changes in income tax regulations bring both opportunities and the need for careful planning. Individuals and businesses should assess how these revisions impact their tax liabilities and strategize accordingly. Consulting with tax professionals can provide personalized guidance and ensure compliance with the latest rules. Staying informed is the first step towards effective tax management in this evolving landscape.
DISCLAIMER
The views expressed in this article are personal views of the author, intended solely to provide general information and should not be taken as professional advice or substitute of professional advice. Before acting on any of the information provided herein, please consult your Advocate or CA or a qualified tax expert or professional.
