Income Tax reforms in 2025 grabbed nationwide attention as the government rolled out a series of taxpayer-centric and simplification-focused changes aimed at boosting disposable income, improving compliance, and modernising India's tax framework. From major relief for middle-class salaried taxpayers to the proposed new Income Tax Act replacing the decades-old 1961 law, these reforms marked a decisive shift in the way income taxation is structured and administered in India.
The Union Budget 2025 and subsequent announcements focused on making the new tax regime more attractive, reducing litigation, easing TDS/TCS compliance, and clearly defining tax timelines. With headlines such as "No income tax up to ₹12 lakh" and "New Income Tax Law 2025", these changes have a direct impact on individuals, professionals, and businesses alike.
Revised Income Tax Slabs Under the New Tax Regime
One of the biggest highlights of Income Tax 2025 was the revision of slab rates under the new tax regime. The government expanded the slab structure, making taxation more progressive and beneficial for middle-income earners.
New Tax Regime Slabs (FY 2025-26)
- Up to ₹4,00,000 - Nil
- ₹4,00,001 to ₹8,00,000 - 5%
- ₹8,00,001 to ₹12,00,000 - 10%
- ₹12,00,001 to ₹16,00,000 - 15%
- ₹16,00,001 to ₹20,00,000 - 20%
- ₹20,00,001 to ₹24,00,000 - 25%
- Above ₹24,00,000 - 30%
This restructuring significantly reduced the tax burden for salaried taxpayers opting for the new regime.
No Income Tax Up to ₹12 Lakh Due to Enhanced Rebate
A major headline-grabbing reform was the enhancement of rebate under Section 87A. Under the new tax regime, individuals with total income up to ₹12 lakh effectively pay zero tax.
This move provided massive relief to:
- Salaried employees
- Young professionals
- Middle-income families
It also encouraged wider adoption of the new tax regime.
Higher Standard Deduction for Salaried Taxpayers
The standard deduction for salaried individuals and pensioners was increased, boosting net take-home income. This change benefited taxpayers who do not claim multiple exemptions and deductions, aligning perfectly with the philosophy of a simpler tax regime. By lowering slab rates, enhancing the Section 87A rebate, and increasing standard deductions, the government ensured that a large section of salaried taxpayers faced either significantly lower tax liability or no tax at all under the new regime.
Proposal to Introduce the New Income Tax Act, 2025
One of the most structural changes announced was the proposal to replace the Income Tax Act, 1961 with a new Income Tax Act, 2025.
Key objectives of the new law
- Simplified language and structure
- Reduced litigation and ambiguity
- Clear definitions and timelines
- Improved taxpayer experience
This reform aims to modernise India's tax legislation for the digital economy.
Refund Claim Not Restricted to Due-Date Filers
A controversial clause initially proposed-restricting income-tax refunds only to those who filed returns before the due date-was later withdrawn.This move was widely welcomed as it:
- Protected genuine taxpayers
- Reduced hardship for late filers
- Reinforced a taxpayer-friendly approach
Introduction of Nil-TDS Certificate Facility
Income Tax 2025 introduced provisions allowing eligible taxpayers to apply for a Nil-TDS Certificate where there is no tax liability.
This helps:
- Avoid unnecessary TDS deductions
- Improve cash flow
- Reduce refund dependency
Especially beneficial for senior citizens and low-income taxpayers.
Rationalisation of TDS and TCS Provision
Several TDS and TCS thresholds were rationalised to reduce compliance burden, especially for small taxpayers and businesses.
Key benefits include:
- Fewer deductions for small transactions
- Simplified compliance
- Reduced reconciliation issues
- Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) were significantly raised for various transactions, including:
- TDS on interest income: Increased to ₹1 lakh for senior citizens and ₹50,000 for others from banks.
- TDS on rent: The annual limit increased to ₹6 lakh (₹50,000 per month) from ₹2.4 lakh.
- TCS on LRS remittances: The threshold for foreign remittances under the Liberalised Remittance Scheme (LRS) was raised from ₹7 lakh to ₹10 lakh.
Procedural Simplifications for Businesses and Professionals
Income Tax 2025 also focused on process improvements, including:
- Streamlined assessment procedures
- Reduced notices for minor mismatches
- Increased use of faceless and digital systems
These changes aim to improve ease of doing business and reduce taxpayer harassment.
Extended Time for Updated Returns
The time limit for filing an Updated Income Tax Return (ITR-U) was extended from 24 months to 48 months (4 years) from the end of the relevant assessment year, allowing taxpayers more time to correct errors or disclose undisclosed income.
Taxation of High-Premium ULIPs
Unit Linked Insurance Plans (ULIPs) with an annual premium exceeding ₹2.5 lakh are now treated as capital assets and taxed under capital gains rules, bringing them in line with mutual funds.
Benefits for Start-ups
The deadline for eligible start-ups to claim a 100% deduction of profits for three consecutive years was extended to those incorporated before April 1, 2030.
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