Arjuna (Fictional Character): Krishna, the Union Budget for 2025-26 has been announced recently. What are the new key proposed changes, and how will they impact individual taxpayers?
Krishna (Fictional Character): Arjuna, this budget brings significant changes aimed at reducing the compliance burden and providing tax relief to individual taxpayers. However, the biggest change is yet to come-a new Income Tax Bill which will be introduced in Parliament next week. While the current proposals seem favourable, taxpayers must remain cautious, as additional conditions may be introduced later that could impact tax savings.
Arjuna (Fictional Character): Krishna, how do these proposed changes benefit taxation of the individuals?
Krishna (Fictional Character): Arjuna, the rebate under Section 87A has been increased to Rs. 60,000. Individuals earning up to Rs 12 lakh will not have to pay any tax. This is a significant increase from the previous threshold of Rs 7 lakh.
- For instance, an individual earning Rs 12 lakh annually for FY 2024-25 would have paid approximately Rs 80,000 in taxes after deductions. However, for FY 2025-26 with increased rebates and lower slab rates, this person will not have to pay any tax at all, resulting in a direct savings of Rs 80,000.
- Similarly, a taxpayer earning Rs 24 lakh earlier had to pay over Rs 4,10,000 lakh in taxes. Under the proposed new tax regime, their tax liability will reduce to 3,00,000, providing a tax saving of Rs 1,10,000.
This shows that the benefits are not limited to middle-class earners but also extend to high-income groups.
The finance minister clearly mentioned that special rate of income shall not be an eligible income for claiming rebate u/s 87A i.e. Income from capital gains.
Arjuna (Fictional Character): Krishna, are there any proposed changes in TDS and TCS that will affect individuals?
Krishna (Fictional Character): Arjuna, the budget proposes key modifications in TDS and TCS to simplify compliance and reduce tax deductions for individuals.
- TDS on bank interest (Section 194A) threshold is proposed to increase to Rs 50,000 for individuals and Rs 1 lakh for senior citizens, reducing the number of taxpayers affected by TDS deductions.
- TDS on rent will now be applicable only if the monthly rent exceeds Rs 50,000, whereas earlier TDS was applicable if the monthly rent crossed Rs 20,000. This means that a taxpayer paying Rs 6 lakh in annual rent will not attract any TDS under the new system.
- TCS on foreign remittances under LRS is proposed to increase from Rs 7 lakh to Rs 10 lakh, benefiting individuals sending money abroad for education, travel, or investments.
- TCS on the sale of specified goods above Rs 50 lakh is proposed to be removed, reducing compliance burdens for businesses and individuals.
- Sections 206AB and 206CCA, which mandated higher TDS/TCS rates for non-filers, are proposed to be omitted, making it easier for taxpayers and businesses to comply.
These measures will help reduce unnecessary tax deductions, simplify compliance, and improve cash flow for taxpayers.
Arjuna (Fictional Character): Krishna, what are the other proposals introduced in the budget?
Krishna (Fictional Character): Arjuna, some other key proposals made in the budget are as follows:
- The time limit for filing updated returns is proposed to be extended from two years to four years, allowing taxpayers more time to correct errors and disclose omitted income without facing severe penalties.
- The limits on the income of the employees for the purpose of calculating perquisites has been increased.
- The annual value of a self-occupied house property shall be considered nil, even if the owner cannot occupy it for any reason, simplifying tax treatment for homeowners.
- Contribution to NPS Vatsalaya is also made eligible for claiming deduction under sec 80 CCD(1B).
- The Budget proposed an exemption on withdrawals from the National Savings Scheme (NSS) from August 29, 2024, for amounts deposited and interest accrued for which deduction was previously claimed.
Arjuna (Fictional Character): Krishna, what does the taxpayer learn from this?
Krishna (Fictional Character): Arjuna, the proposed changes in this budget focus on enhancing savings, reducing tax burdens, and making compliance easier. These changes are big relief for the individual taxpayers, and it will help to increase their savings. Arjuna, just as a batsman adjusts his stance based on the bowler's strategy, a taxpayer must plan ahead to take full advantage of these tax reforms.
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