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Budget 2025: Major Income Tax Reforms for Middle-Class Relief & Compliance Simplification

Budget 2025: New Income Tax Regime, TDS/TCS Reforms & Compliance Updates

The budget speech introduces several income tax reforms aimed at relieving the middle class, simplifying procedures, and encouraging voluntary compliance. Below are the key highlights:

Personal Income Tax Reforms

  • A new income tax regime with revised slabs and lower tax rates to reduce the burden on the middle class.
  • No income tax on income up to ₹12 lakh (excluding special rate income like capital gains).
  • Salaried taxpayers benefit from a ₹75,000 standard deduction, raising the exemption limit to ₹12.75 lakh.
  • New tax slabs:
    • ₹0–4 lakh: Nil
    • ₹4–8 lakh: 5%
    • ₹8–12 lakh: 10%
    • ₹12–16 lakh: 15%
    • ₹16–20 lakh: 20%
    • ₹20–24 lakh: 25%
    • Above ₹24 lakh: 30%
  • A tax rebate ensures zero tax liability for incomes up to ₹12 lakh.
  • Sample savings: A taxpayer earning ₹12 lakh saves ₹80,000, while one earning ₹25 lakh benefits by ₹1,10,000.

Rationalization of TDS/TCS

  • Fewer TDS rates and higher threshold limits for better clarity.
  • Senior citizen interest exemption doubled from ₹50,000 to ₹1 lakh.
  • TDS on rent threshold increased from ₹2.4 lakh to ₹6 lakh.
  • TCS on remittances under LRS increased from ₹7 lakh to ₹10 lakh.
  • No TCS on education-related remittances from loans.
  • TCS on sale of goods removed; higher TDS now applies only to non-PAN cases.

Encouraging Voluntary Compliance

  • Updated return filing window extended from 2 years to 4 years.
  • Additional tax for late updated returns:
    • 60% (24–36 months), 70% (36–48 months).
  • Mandatory reporting of crypto-asset transactions.
  • Self-occupied property tax exemption for up to two properties.

Reducing Compliance Burden

  • Charitable trusts/institutions: Registration period extended from 5 to 10 years.
  • Minor defaults won’t lead to trust registration cancellation.
  • Higher TDS/TCS for non-filers removed.

Ease of Doing Business

  • New 3-year safe harbor scheme for international transactions.
  • Expanded safe harbor rules to reduce litigation.
  • Withdrawals from National Savings Scheme (NSS) & NPS Vatsalya accounts to be tax-exempt.
  • All tax processing, including appeals, to be fully digitalized.

Employment and Investment

  • Presumptive taxation for non-residents servicing electronics manufacturing companies.
  • Tonnage tax extended to inland vessels.
  • Startup benefits extended by 5 years (until 1.4.2030).
  • Tax incentives for ship-leasing, insurance, and treasury centers in IFSC.
  • Sovereign Wealth & Pension Fund investment deadline extended to 31.3.2030.

Impact & Revenue Considerations

These reforms aim to enhance taxpayer convenience, boost disposable income, and stimulate investment, creating a more business-friendly environment. The new income tax bill is designed for clarity and efficiency, reducing the current law’s complexity by nearly 50%. As a result, the government is forgoing an estimated ₹1 lakh crore in direct tax revenue.

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