Budget 2025 has completely reshaped the Income Tax Act, 1961. From 1st April 2025, every salaried employee, business owner, and investor will experience the impact of these reforms. Think of this like updating your smartphone’s operating system: just as updates remove glitches and add new features, these tax changes aim to simplify compliance, cut red tape, and boost savings.

In this article, I will walk you through every Income Tax Change from 1st April 2025, explain their impact, and show you how you can plan smarter. Moreover, I will also introduce you to a powerful Automatic Income Tax Preparation Software in Excel, specially designed for both government and non-government employees.

Table of Contents

1. New Income Tax Slabs for FY 2025-26

The government introduced fresh tax slabs under the new default regime (Section 115BAC). By doing so, it encouraged individuals to save more while also increasing their disposable income.

Revised Slabs for FY 2025-26 (AY 2026-27):

• Up to ₹4,00,000 → Nil
• ₹4,00,001 – ₹8,00,000 → 5%
• ₹8,00,001 – ₹12,00,000 → 10%
• ₹12,00,001 – ₹16,00,000 → 15%
• ₹16,00,001 – ₹20,00,000 → 20%
• ₹20,00,001 – ₹24,00,000 → 25%
• Above ₹24,00,000 → 30%

Importantly, the Old Tax Regime continues unchanged but remains optional.

2. Comparison with Previous Year Slabs

When compared with FY 2024-25, the new slabs are wider and more taxpayer-friendly. For instance, the exemption limit now rises from ₹3 lakh to ₹4 lakh, offering relief to millions of middle-class earners.

This restructuring gradually expands each slab, thereby giving more breathing room to taxpayers across income levels.

3. Increased Rebate Under Section 87A

The rebate u/s 87A has been significantly enhanced:

• Earlier: ₹25,000 rebate (tax-free income up to ₹7 lakh).
• Now: ₹60,000 rebate (tax-free income up to ₹12 lakh under the new regime).

As a result, taxpayers earning up to ₹12 lakh will now pay zero tax.

4. Enhanced TDS Thresholds

The government raised several TDS thresholds to reduce unnecessary deductions and ease compliance. For example:

• Senior citizens’ interest income: ₹50,000 → ₹1,00,000
• Rent: ₹2,40,000 annually → ₹50,000 monthly
• Professional fees: ₹30,000 → ₹50,000
• Commission/Brokerage: ₹15,000 → ₹20,000

Clearly, freelancers, consultants, and small taxpayers will gain the most from this move.

5. Changes in Tax Collected at Source (TCS)

Two significant reforms reshaped TCS provisions:

1. Overseas Remittances under LRS – Threshold increased from ₹7 lakh to ₹10 lakh. Plus, no TCS applies to education loans.
2. Abolition of Section 206C(1H) – TCS on goods worth over ₹50 lakh has been scrapped.

Together, these steps remove compliance pressure on individuals and businesses engaged in global transactions.

6. Extended Timeline for Updated Tax Returns

Now, you can file an Updated Return (ITR-U) within 48 months (4 years) from the end of the assessment year.

However, you must pay additional tax depending on the delay:

• Within 12 months → 25% extra
• Within 24 months → 50% extra
• Within 36 months → 60% extra
• Within 48 months → 70% extra

This extension provides more flexibility for voluntary disclosures.

7. Incentives for IFSC Units

The government extended tax concessions for IFSC units until 31 March 2030. In addition, life insurance bought from IFSC offices by NRIs enjoys complete exemption under Section 10(10D).

This strengthens India’s global financial hub ambitions.

8. Tax Exemptions for Start-ups

Start-ups incorporated before 1st April 2030 can now enjoy 100% tax deductions for 3 out of 10 years under Section 80-IAC.

Consequently, entrepreneurs gain more breathing space to reinvest profits into their businesses.

9. Removal of Section 206AB and 206CCA

Earlier, businesses had to verify whether the recipient filed an ITR before deducting tax. From April 2025, these sections will be removed, thereby cutting compliance burden for both taxpayers and businesses.

10. Deduction on Partner Remuneration

Partnership firms and LLPs can now claim higher deductions:

• First ₹6,00,000 profit → Higher of ₹3,00,000 or 90%
• Balance → 60% of profit

This ensures partners receive fairer remuneration benefits.

11. ULIPs to be Taxed as Capital Gains

If annual premiums exceed ₹2.5 lakh or 10% of the sum assured, ULIP proceeds will be taxed as capital gains.

• STCG → 20%
• LTCG → 12.5%

If premiums remain below the threshold, exemptions under Section 10(10D) still apply.

12. Relaxation in Deemed Let-Out Property Provision

Previously, you could treat two homes as self-occupied (with NIL annual value) only if relocation was forced. Now, from April 2025, you can declare any two houses as self-occupied regardless of the reason.

13. Removal of Equalisation Levy

The 6% levy on digital ad payments to foreign service providers is removed from April 2025. This reduces costs for Indian companies relying on global platforms.

14. How These Changes Affect Individual Taxpayers

• Middle-class earners → Save more with wider slabs and higher rebates.
• Senior citizens → Earn higher tax-free interest.
• Property owners → Enjoy flexibility in self-occupied property rules.
• Investors → Need to reassess ULIPs.
• Businesses → Benefit from reduced TDS/TCS compliance.

15. Key Takeaways for FY 2025-26

• New tax regime slabs = fairer, progressive system.
• Rebate under Section 87A = zero tax up to ₹12 lakh.
• TDS/TCS compliance burden reduced.
• Start-ups and IFSC units get longer tax holidays.
• Revisions in property, ULIP, and partner remuneration rules provide equity.

Conclusion

The Income Tax Changes from 1st April 2025 reflect a bold step toward simplification. While the government aims to balance revenue collection with taxpayer relief, the real benefits will depend on how individuals and businesses adapt.

Think of these reforms as a smoother operating system update: fewer bugs, better performance, and more transparency. Whether you’re salaried, self-employed, or a business owner, you now have a clearer and more flexible tax framework to plan your finances.

Frequently Asked Questions (FAQs)

1. What are the major Income Tax Changes from 1st April 2025?
   Key changes include revised slabs, higher rebate under Section 87A, enhanced TDS/TCS thresholds, an extended timeline for updated returns, and tax reliefs for start-ups and IFSC units.
2. Is income up to ₹12 lakh tax-free from FY 2025-26?
   Yes, under the new tax regime, income up to ₹12 lakh is tax-free due to the enhanced rebate.
3. Do I still need to file ITR if my income is below ₹12 lakh?
   Yes. Filing ITR remains mandatory if your income crosses the basic exemption limit, even if tax liability is nil.
4. What happens to ULIPs after April 2025?
   ULIPs with annual premiums above ₹2.5 lakh or 10% of the sum assured will be taxed as capital gains.
5. Are the old tax regime slabs still available?
   Yes, the old regime continues unchanged but remains optional.

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