By Surabhi Marwah
Budget 2025 income tax: The Finance Minister in her budget speech stated that taxation reforms were one of the key reforms to realise the vision of “Viksit Bharat”. The personal tax proposals in the budget presented today were made keeping in view this and the ideology that it was essential for the government to be responsive to the needs voiced by the citizens of the country. Some of the key takeaways from Budget 2025 for individual taxpayers are laid out below.
- Introduction of new income-tax bill: It has been proposed that a new income-tax bill which will be clear and direct in text and will have close to half of the present law, in terms of both chapters and words, will be introduced. It is expected to lead to tax certainty and reduced litigation by being simple to understand for both the taxpayers and tax administration.
- Revision in tax slabs and rates: One of the major amendments proposed in the current budget is the change in the tax rates and slabs under the Concessional Tax Regime (CTR) which would benefit taxpayers across the board. The proposed tax slabs are as under:
The rates of surcharge and health and education cess continue to remain the same as earlier.
Further, with a view to boost consumption, investment and savings by increasing the spendable income available in the hands of the middle-class taxpayers, it has been proposed to enhance the threshold for rebate under the CTR to INR 12 lakhs from the existing limit of INR 7 lakhs. This will increase the amount of rebate from INR 25,000 to INR 60,000. Effectively meaning that individual taxpayers with income (other than income taxable at special rates such as capital gains) up to INR 12 lakhs (INR 12.75 lakhs for salaried taxpayers considering standard deduction of INR 75,000) will not have to pay any income tax.
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With this amendment, the government has made an effort to make the CTR much more attractive for individual taxpayers.
The below table summarises the tax savings for individuals at various taxable income levels.
* This includes applicable surcharge and health and education cess.
- Rationalization of TDS and TCS provisions: In an effort to simplify tax regulations, the Government has proposed a series of measures to rationalize Tax Deducted at Source (TDS) and Tax Collection at Source (TCS). Some of the key changes impacting individuals are below:
Further, the threshold limit for TCS with respect to the remittances made under the Liberalised Remittance Scheme (LRS) has now been increased from INR7 Lakhs to INR10 Lakhs. Additionally, the TCS on remittances for education purposes made out of a loan taken from a specified financial institution has now been removed.
- Deduction for NPS Vatsalya scheme: The NPS Vatsalya Scheme allows parents and guardians to open and manage a NPS account for minors until they reach the age of 18 years. It is proposed that contributions made to the NPS Vatsalya accounts would be eligible for deduction under Section 80CCD(1B) up to a maximum of INR 50,000. This deduction is within the existing limit of INR 50,000 available for Section 80CCD(1B). Further, these funds become taxable in the hands of the parent or guardian upon withdrawal/ closure of the account except in case of death of the minor. The scheme also allows for partial withdrawals under certain circumstances, which are exempt from tax to the extent such withdrawals do not exceed 25% of the amount of contributions.
- Rationalisation of taxation of ULIPs: In the current budget, the taxation of ULIPs has been rationalised to provide that all ULIPs which are not exempt under section 10(10D) will be taxable as capital gains similar to equity-oriented funds. Currently only those ULIPs which are purchased after 01 February 2021 with premium/ aggregate premiums more than INR 2.5 lakhs p.a. are taxable as capital gains with other non-exempt ULIPs being taxed as income from other sources. Post the amendment, a ULIP purchased in 2005 for which the premium payable in any year exceeds 10% of the actual sum assured, will also be taxable as capital gain instead of being taxed as income from other sources. The ULIPs which were exempt previously will continue to remain so.
- Extension of time limit to file updated return: The time limit to file an updated return has been extended from 24 months to 48 months from the end of the assessment year. Further, the additional tax payable for updated returns filed between 24 to 36 months would be 60% of aggregate of tax and interest payable on the additional income disclosed in the updated return and 70% in case of updated returns filed between 36 to 48 months.
- Simplification of rules for self-occupied properties: With a view to simplify the provisions, the annual value of a self-occupied property (up to 2 properties) will be considered as Nil, if the owner occupies it for own residence or is unable to occupy it for any reason. Currently, for claiming the annual value as Nil, there are conditions to be satisfied like employment, business or profession carried on at any other place due to which the individual is unable to occupy the house property.
(Surabhi Marwah is Tax Partner, EY India. Ammu Sadanandhan, Director, EY India contributed to the article. Views are personal)
