The Income Tax bill in the Union Budget 2025 introduced major reforms aimed at simplifying taxation, increasing transparency, and providing relief to taxpayers. It introduced new Income Tax slabs, modified deductions, and updated certain provisions related to tax compliance. It also retained some aspects of the old system while making structural improvements to ensure a more efficient taxation process.
The tax structure in India has undergone several transformations over the years to keep up with economic shifts and evolving financial policies. With the introduction of the new Income Tax bill, the government made tax filing more straightforward while also modifying the distribution of tax burden. The latest revisions primarily focus on offering benefits to salaried individuals and pensioners while maintaining stability for corporate taxpayers.
Let’s break down the details to understand the new Income Tax slabs and other significant changes.
Revised Income Tax Slabs
A major highlight of the Income Tax bill 2025 is the restructuring of income tax slabs under the new tax regime. The new income tax slabs are as follows:
Income Range (INR)
| Tax Rate (%)
|
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
|
The restructuring aims to reduce the burden on salaried individuals and promote economic growth. The income tax rates have been adjusted to ensure fairer taxation for middle-class and high-income individuals.
Several tax exemptions available in the old regime have been eliminated in favour of lower tax rates. Previously, taxpayers earning above INR 5,00,000 were subject to taxation, but with this revision, income up to INR 4,00,000 is tax-free. Additionally, considering the increased standard deduction of INR 75,000, income up to INR 12,75,000 effectively remains non-taxable.
Key Changes in the New Income Tax Bill
Higher Standard Deduction
The standard deduction has been increased from INR 50,000 to INR 75,000. This benefits salaried employees and pensioners by lowering their taxable income, thereby reducing their overall tax burden. The aim of this increase is to adjust for inflation and rising living costs.
Taxation on Unit-Linked Insurance Plans
Under the Union Budget 2025, the government introduced a new rule for ULIP taxation. If the annual premium for this type of life insurance plan exceeds ₹2.5 lakh, the returns generated from such policies will now be subject to capital gains tax. This change aims to balance investment benefits while ensuring higher transparency in high-premium policies.
Introduction of a 25% Tax Slab
A new 25% tax slab has been introduced for income between INR 20,00,001 and INR 24,00,000. This change is intended to create a more balanced and progressive taxation structure.
Revised TDS and TCS Provisions
Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rules have been rationalised to ease compliance. Key changes include:
- The TDS limit on interest for senior citizens has been increased from INR 50,000 to INR 1,00,000 per year.
- The threshold for TDS on rental income has been raised from INR 2,40,000 to INR 6,00,000.
Tax Exemption on National Savings Scheme Withdrawals
Withdrawals from the National Savings Scheme (NSS) made on or after August 29, 2024, are now tax-exempt. This encourages long-term savings and investments.
Extended Time to File Updated Tax Returns
Taxpayers now have four years instead of two to file updated tax returns, allowing more flexibility for rectifications and disclosures.
Tax Relief Across Different Income Brackets
The new tax regime offers substantial savings. Here’s an example of how it benefits different income levels:
- A taxpayer earning INR 10,00,000 under the new tax regime now has zero tax liability, compared to INR 44,200 under the previous system.
- A taxpayer earning INR 20,00,000 will now pay INR 1,85,000 (plus cess) instead of INR 2,78,200 (plus cess), saving INR 93,000.
Aspects That Remain Unchanged
Retention of the Old Tax Regime
Despite the introduction of the new tax slabs, the old tax regime remains an option for taxpayers who prefer it. Those benefiting from deductions with tax saving investment options, such as those under Section 80C, 80D, and 24(b), may choose to continue with the previous system.
Corporate Tax Rates Remain the Same
The reforms primarily focus on individual taxpayers. Corporate tax rates remain unchanged, maintaining stability for businesses and investors.
Existing Exemptions and Deductions Continue
Taxpayers opting for the old tax regime can still claim deductions for:
- Investments under Section 80C (PPF, ELSS, etc.).
- Health insurance premiums under Section 80D.
- Home loan interest under Section 24(b).
Tax Administration and Compliance Process Unaffected
The enforcement and collection of taxes remain under the Income Tax Department’s purview. Taxpayers can continue using the Income Tax e-filing platform to file their returns, ensuring a smooth and transparent process for tax compliance. The process of filing tax returns and assessments also remains largely the same, facilitating minimal disruption.
Old vs. New Tax Regime
Feature
| Old Tax Regime
| New Tax Regime (2025)
|
Standard Deduction
| INR 50,000
| INR 75,000
|
Tax-Free Income Limit
| INR 5,00,000
| INR 12,75,000
|
Highest Tax Rate
| 30% (above INR 10,00,000)
| 30% (above INR 24,00,000)
|
Eligibility for Exemptions/Deductions
| Available
| Limited
|
TDS Limit on Interest for Senior Citizens
| INR 50,000
| INR 1,00,000
|
Time to File Updated Returns
| 2 Years
| 4 Years
|
Final Thoughts
The Income Tax bill 2025 introduces a more structured and progressive tax regime. By revising tax slabs, increasing the standard deduction, and simplifying compliance requirements, the government aims to make taxation more efficient.
Taxpayers now have the option to choose between the new and old tax regimes, depending on which benefits them the most. Those with significant exemptions and deductions may still find the old system preferable, while others may benefit from the straightforward structure of the new tax regime. You can even use online tools like an income tax calculator to estimate your tax liability under both regimes, allowing you to plan more efficiently.
Staying informed about these changes is crucial for optimising tax planning and ensuring compliance with the latest provisions. Taxpayers are encouraged to assess their financial situation and select the most beneficial tax regime accordingly.
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