Income Tax Changes FY 2025-26: April 1, 2025, signals the start of the fresh fiscal year. As the new financial year begins, several new income tax regulations come into effect, including a more rationalised new income tax regime, higher basic exemption limit and tax rates. Additionally, several changes in TDS, TCS rules also take effect.
Understanding these new income tax rules is crucial, as they influence tax deductions from various income sources, including salary and interest earnings. Additionally, these changes will determine your tax liability for income earned in FY 2025-26.
Following are the 11 changes in income tax laws that come into effect today, that is April 1, 2025:
1. New Income Tax Slabs and Rates Under the New Income Tax Regime
The revised new tax regime introduces new income tax slabs and rates. Under the new income tax regime income above Rs 24 lakh will now attract a 30% tax rate as against Rs 15 lakh earlier. Also, the basic exemption limit has been raised from Rs 3 lakh to Rs 4 lakh.
2. Zero tax on income up to Rs 12 lakh – Rs 12.75 lakh for salaried individuals
With changes in the new income tax regime, individuals earning a taxable income up to Rs 12 lakh will now have to pay ZERO tax! This provision applies exclusively to individuals who select the new tax regime in FY 2025-26. However, this does not exempt one from filing an income tax return (ITR). The zero tax benefit is available through a tax rebate under Section 87A of the Income Tax Act, 1961.
To access the tax rebate under Section 87A, individuals must submit their ITR. For salaried individuals earning up to Rs 12.75 lakh, there will be no tax with a Rs 75,000 standard deduction.
Also Read | How to calculate income tax with latest tax slabs: Have taxable income above Rs 12 lakh? Know how it will be taxed under new income tax regime
3. Changes in ULIP Taxation Structure
The Budget 2025 has introduced modifications to the taxation structure of specific ULIPs. The revised regulations specify that ULIP proceeds not qualifying for exemption under Section 10 (10D) shall be classified as capital assets and will be incorporated within the equity-oriented funds category, according to an ET report.
Consequently, proceeds from ULIPs that do not qualify for Section 10 (10D) exemption will face capital gains taxation. A 20% tax rate applies to short-term gains, whilst long-term gains attract a 12.5% tax without the benefit of indexation.
Tax exemption under Section 10 (10D) continues to apply to ULIP proceeds where the annual premium remains below Rs 2.5 lakh.
Tax experts note that previously, there existed no definitive taxation guidelines for ULIPs with premiums exceeding Rs 2.5 lakh. This ambiguity arose because ULIPs, unlike conventional policies, direct a substantial portion of premiums towards stock market investments, making traditional policy taxation frameworks unsuitable. These taxation revisions take effect from FY 2025-26.
4. TDS Rates and Thresholds Adjustments
The Budget 2025 has introduced modifications to TDS provisions, encompassing adjustments to rates and elevating thresholds for implementing these provisions.
Key TDS amendments include:
a) Section 194LBC TDS rate adjustment: This applies to income distributed by securitisation trust to resident investors. Currently, until March 31, 2025, individuals or Hindu Undivided families face 25% TDS, whilst others face 30%. Starting April 1, 2025, a uniform 10% TDS rate shall apply.
b) Threshold adjustments: Effective April 1, 2025, elevated thresholds will apply to sections 193, 194A, 194, 194K, 194B, 194BB, 194D, 194G, 194H, 194-I, 194J and 194LA, enabling taxpayers to retain more disposable income.
5. ITR Non-filers Relief from Enhanced TDS/TCS
The government has eliminated provisions requiring increased TDS and TCS rates for ITR non-filers. This revision takes effect from April 1, 2025, removing higher TDS and TCS obligations for those who haven’t submitted ITRs in specified periods.
The Budget 2025 memorandum states: “Section 206AB of the Act, requires deduction of tax at higher rate when the deductee specified therein is a non-filer of income-tax return. Section 206CCA of the Act, requires for collection of tax at higher rate when the collectee specified therein is a non-filer of income-tax return. This is subject to other conditions specified in the two sections. Representations were received from various stakeholders that it is difficult for the deductor/collector, at the time of deduction/collection, to verify whether returns have been filed by the deductee/collectee, resulting in application of higher rates of deduction/collection, blocking of capital and increased compliance burden. Accordingly, to address this issue and reduce compliance burden for the deductor/collector, it is proposed to omit section 206AB of the Act and section 206CCA of the Act.”
Also Read | Latest income tax slabs FY 2025-26: What are the new income tax slabs, rates after Budget 2025 announcements? Check new vs old tax regime comparison – FAQs answered
6. NPS Vatsalya Contribution Deductions via Section 80CCD
The recent Budget 2025 has incorporated NPS Vatsalya contributions within Section 80CCD framework. Individuals can now avail deductions for their NPS Vatsalya contributions under this section. This benefit remains exclusive to taxpayers who continue with the old tax regime.
7. Enhanced Medical Treatment Perquisite Limits
Starting April 1, 2025, the Budget has revised the tax-free perquisite thresholds for employed individuals. The updated regulations permit tax exemption on employer-funded international medical treatment expenses, covering both employees and their family members.
8. Relief from Legal Action for Late TCS Payments in Specific Cases
Starting April 1, 2025, the authorities have granted immunity from legal proceedings for delayed Tax Collected at Source (TCS) payments under specific circumstances. The revised regulations specify that no legal action shall commence against individuals who remit TCS to the Central Government before the prescribed deadline for submitting quarterly statements.
Also Read | Budget 2025 Income Tax calculator explained: Save up to Rs 1.1 lakh! How income tax slab changes will benefit taxpayers at different salary levels under new regime
9. Extension for Submitting Updated Returns
The timeframe for submitting updated returns has been lengthened. Under the revised regulations effective April 1, 2025, individuals now have 48 months from the assessment year’s conclusion to submit their updated returns. Previously, taxpayers were allowed 24 months post-assessment year to file these returns. The new provision doubles the available time period.
10. Simplified Self-occupied Property Valuation
The tax authorities have streamlined the process of calculating annual house value for taxation purposes. This revision enables straightforward income tax filing by allowing nil value declaration for any two properties.
The authorities have modified the annual value definition for self-occupied properties, providing clarity to homeowners whilst maintaining the existing two-property restriction.
11. Tax Authority to Review Current and Previous ITRs for Discrepancies
Beginning April 1, 2025, tax officials will conduct comparative analyses between current and previous Income Tax Returns (ITRs) to identify inconsistencies. This provision takes effect from April 1, 2025. Whilst the implementation date is confirmed, the tax authority has not yet detailed which specific discrepancies they will examine across both ITRs.
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