 |
|
The Indian Budget 2025 has introduced significant changes to the income tax system, primarily focusing on enhancements to the new tax regime. The most impactful alteration is the increase in the basic exemption limit from INR 3 lakhs to INR 4 lakhs. This directly benefits a large segment of the population, particularly those in the lower to middle-income brackets. Further, the highest income tax slab has been raised from INR 15 lakhs to INR 24 lakhs, providing substantial relief to high-income earners. The revised tax slabs and rates, including the introduction of a new 25% tax rate, aim to create a more equitable and progressive tax structure. The increase in the income threshold for rebate under section 87A, from INR 7 lakhs to INR 12 lakhs, further amplifies the positive impact on taxpayers. The exclusion of special rate income, such as capital gains and lottery winnings, from this threshold calculation addresses ambiguities in previous interpretations and enhances clarity. These combined changes result in considerable tax savings for individuals across various income levels. For example, individuals earning up to INR 12 lakhs annually could save up to INR 80,000, while those earning INR 18 lakhs could save up to INR 110,000. Savings would be even higher for income levels where surcharges are applicable. This demonstrates a clear government intention to incentivize taxpayers to utilize the new tax regime.
Beyond the adjustments to tax brackets and rates, Budget 2025 has incorporated several measures aimed at simplifying tax provisions and reducing compliance burdens. One significant change is the removal of a condition previously required to classify a property as self-occupied. Previously, taxpayers needed to demonstrate an inability to reside in a property due to business or employment reasons while living elsewhere. This requirement has been eliminated, simplifying the process for designating self-occupied properties and potentially reducing ambiguity. Furthermore, the budget extends the INR 50,000 deduction under section 80CCD (previously available only under the old tax regime) to include contributions towards the NPS Vatsalya Scheme, launched to encourage parents to save for their children's future. The clarification that partial withdrawals (up to 25%) from this scheme for specified reasons are non-taxable adds to the scheme's attractiveness and further supports the government's aim to promote financial inclusion. Addressing concerns regarding the National Savings Scheme (NSS), where the government had previously announced the cessation of interest accrual on existing balances, the Budget provides relief by exempting withdrawals made after August 29th, 2024, providing much-needed clarity and preventing unnecessary financial hardship for existing depositors.
The Budget 2025 also demonstrates a focus on improving compliance and reducing tax litigation. Recognizing the need for greater flexibility, the government has extended the timelines for filing updated returns, allowing taxpayers more time to rectify errors and avoid penalties. The inclusion of all unexempted ULIPs in the definition of equity-oriented funds provides consistency and clarity in the taxability of their redemption proceeds, preventing future disputes and enhancing transparency. To ease the burden on taxpayers and improve ease of doing business, the government has rationalized various TCS/TDS thresholds, including those on remittances under the Liberalized Remittance Scheme and interest income for senior citizens. These changes are designed to improve cash flow for many and encourage smoother financial operations. The continuation of higher TDS for those with invalid PANs aims to address tax evasion. However, the removal of higher TDS/TCS for non-filers of returns is a positive step towards reducing compliance burdens and encouraging a smoother tax filing process. The promise to table the new Income Tax Bill soon, aimed at simplification and reduced litigation, highlights the government’s long-term commitment to a more efficient and taxpayer-friendly tax system. The proposed changes signal an endeavor to foster trust and optimism within the taxpayer community, thus contributing to a more robust and cooperative tax environment.
Source: Budget 2025 income tax: Personal tax announcements from the Budget and their impact