The Union Budget 2025 brought much-needed relief and clarity to individual taxpayers, particularly the middle class. In a significant move to simplify taxation and encourage transition to the new tax regime, the Finance Minister has announced sweeping changes that will benefit salaried professionals, small business owners, and retirees alike.
Let’s break down the major personal income tax announcements and understand how they impact taxpayers.
📈 Increased Basic Exemption and Revised Slabs in New Regime
The basic exemption limit under the new tax regime has been increased from ₹3 lakh to ₹4 lakh—a move that offers immediate tax relief to millions of low and middle-income earners.
Further, the highest tax slab threshold has been raised from ₹15 lakh to ₹24 lakh, and a new 25% tax slab has been introduced. These changes aim to reduce the effective tax burden across all income levels.
💰 Rebate Under Section 87A Enhanced
A major highlight of Budget 2025 is the enhancement of the rebate threshold under Section 87A:
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Earlier: Rebate on income up to ₹7 lakh
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Now: Rebate on income up to ₹12 lakh
This means that residents with income up to ₹12 lakh (excluding special income like capital gains and lottery winnings) will effectively pay zero tax, leading to savings of up to ₹80,000 annually.
For those earning ₹18 lakh, the tax savings can go up to ₹1.1 lakh, excluding cess.
🏡 Simplification in Self-Occupied Property Rules
A much-needed clarification has been made in the treatment of self-occupied properties (SOPs). Earlier, a person could claim up to two SOPs with zero annual income, provided they could prove they were unable to reside in those homes due to employment or business elsewhere.
The condition requiring proof of non-residence has now been removed, easing compliance and reducing ambiguity for homeowners.
👪 Support for NPS Vatsalya Scheme
The NPS Vatsalya Scheme, introduced in September 2024, allows parents or guardians to start a National Pension Scheme account for their minor children.
Budget 2025 extends the benefit of Section 80CCD(1B)—a deduction of ₹50,000—to contributions under this scheme as well. Additionally, partial withdrawals (up to 25%) from the NPS Vatsalya account for specified reasons will be tax-free, aligning the scheme with standard NPS rules.
📄 Exemption on Withdrawals from Pre-1992 NSS
In response to taxpayer concerns, the government has announced that withdrawals from the National Savings Scheme (NSS) made after August 29, 2024, will be exempt from tax, provided deductions were already claimed before April 1992.
This is a major relief for long-term savers who had been earning no interest since the August 2024 notification but were still being taxed on withdrawal.
🕒 Updated Return Filing Window Extended
In a bid to promote voluntary compliance and align with the government’s "Trust First, Scrutinize Later" philosophy, the timeline to file updated income tax returns has been extended by two more years.
However, taxpayers will need to pay an additional tax of 60% or 70% depending on how late the updated return is filed. This offers a way for non-compliant taxpayers to rectify mistakes and avoid penalties.
📉 Rationalization of TDS and TCS Thresholds
To ease the financial and compliance burden, the Budget has also made key revisions in TDS/TCS thresholds:
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Liberalized Remittance Scheme (LRS): TCS threshold raised from ₹7 lakh to ₹10 lakh
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Remittance for education via loan: TCS exempted (0%)
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Senior citizens’ interest income: TDS threshold increased from ₹50,000 to ₹1 lakh
These changes are likely to improve cash flow for senior citizens and families managing international education expenses.
🔄 Changes in High TDS Rules and Ease of Doing Business
While higher TDS will continue for non-PAN holders or those with invalid PANs, the government plans to remove higher TDS/TCS rates for non-filers of returns.
This is a major ease-of-doing-business initiative that simplifies compliance, especially for first-time filers or those who missed deadlines in the past.
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