Income Tax Changes From 1st April 2025: Top 10 New Income Tax Rules

The Budget 2025 introduced some major changes to the Income Tax Act 1961 to simplify the tax structure in India. These changes will come into effect on 1st April 2025 and will be relevant from FY 2025-26 onwards. 

This article will cover all major changes that one must be familiar with to plan one's finances for FY 2025-26 accordingly.

Important Income Tax Changes 2025

Income Tax Slabs for FY 2025-26 (AY 2026-27)

The Budget 2025 proposed new tax slab rates under section 115BAC i.e., the New Tax Regime or the Default Tax Regime. This was to ensure that individuals save more and increase their spending capacity. These revised tax slab rates will be applicable for income earned in FY 2025-26 onwards.

The new slab rates for FY 2025-26 are as follows:

 Note: Income Tax slab rates under the Old Tax Regime (Optional Regime) remain the same.

Increased Rebate Under Section 87A

The rebate u/s 87A for taxpayers filing tax returns under the New Tax Regime was increased to Rs. 60,000 from the previous limit of Rs. 25,000. Now the taxpayer can enjoy a tax free income of up to Rs. 12 Lakhs.

This means taxpayers earning income up to Rs. 12 Lakhs will have no tax liability under the new tax regime.

The rebate for taxpayers opting for the Old Tax Regime remains the same i.e., Rs. 12,500.

Tax Deduction at Source (TDS) Changes

The provisions of TDS have significant changes that will be applicable from April 2025. It was proposed to enhance threshold limits for various TDS sections for both individuals and businesses. The threshold for TDS on interest received by senior citizens was increased to Rs 1 lakh from the previous limit of Rs. 50,000. Similarly, the thresholds for rent and commissions were also increased. The enhanced threshold limits for various TDS sections are given in the below table.

Effective from April 2025, the TDS threshold limits for various sections were increased as follows:

   Note: Provisions of other TDS related sections remain the same.

Tax Collected At Source (TCS) Changes

The following TCS changes will be effective from April 2025 for TCS:

Note: Provisions of other TCS related sections remain the same.

Updated Tax Return: ITR-U

The deadline for filing an Updated Tax Return was extended from 12 months to 48 months (4 years) from the end of the relevant assessment year. This extension was to encourage the taxpayers to disclose any previously undisclosed incomes and pay relevant taxes on the same. 

The additional tax liability based on the timeline of filing an updated return is as follows:

Benefits For IFSC

• The sunset dates for the commencement of operations of IFSC units for tax concessions have been extended to 31 March 2030.
• The premium paid on a Life Insurance policy availed from an office in IFSC by non-residents, is completely exempt under section 10(10D) without any maximum premium amount. 

Tax Exemption For Start-ups

Under Section 80-IAC, start-ups incorporated before 01.04.2030 will be allowed a 100% deduction of profits and gains for three consecutive years out of ten years from the year of incorporation subject to certain conditions.

Omission Of Section 206AB and 206CCA

From April 2025, both Sections 206AB and 206CCA of the Income Tax Act 1961 will be omitted to reduce the compliance burden on tax deductors/collectors.

Previously, deductors/collectors were required to determine the correct withholding tax by identifying if the recipient has filed tax returns or not. This was a burden as it led to delays in filing TDS and TCS return statements, higher rates, blocking of capital, and compliance burden.

Deduction On Remuneration Paid To Partners

The limit of deduction available to partnership firms and LLPs for remuneration paid to partners is also enhanced. The calculation limits were revised to make way for higher deductions during tax computation.  

The following limits will be applicable to determine the maximum deduction available for partners remuneration paid:

Treatment Of ULIPs as Capital Gains

The proceeds from ULPIs whose premium exceeds 10% of the assured amount or Rs. 2.5 Lakhs annually will be treated as capital gains and will be taxed accordingly.

Relaxation Of Deemed Let-Out Property Provision

Previously, the annual value of up to two self-occupied properties was deemed to be NIL, if the owner is unable to occupy the property due to employment, business, or professional commitments at a different location. It is now proposed that the annual value of up to two house properties shall be NIL if the owner occupies the house for his own residence or cannot occupy it for any reason.

The Finance Bill 2025, relaxed the condition to determine deemed let-out property by allowing individuals to claim up to two house properties as self-occupied and declare NIL income on such properties without any conditions. 

Conclusion

The above changes are crucial for FY 2025-26, and one must consider such changes in order to plan finances and taxes properly for the year.