Highlights of Direct Tax proposals in FINANCE BILL, 2025

Finance Minister Nirmala Sitharaman presented her record 8^th consecutive Union Budget 2025-26 today (on February 1, 2025) of Modi 3.0 Government. Key highlights of direct tax proposals are as under:

• A new Income Tax Bill is set to be introduced in the upcoming week.
• Tax relief for salaried individuals: Individuals with an income of up to Rs. 12,75,000 will not be liable to pay tax under the revised new tax regime. The updated tax slab rates for Individuals and HUFs opting for the new regime are:

• Enhanced Rebate under Section 87A: The income threshold for availing the rebate under Section 87A for resident Individuals has been increased from Rs. 7,00,000 to Rs. 12,00,000 under the new tax regime. Consequently, the maximum rebate amount has been raised from Rs. 25,000 to Rs. 60,000 (excluding income taxed at special rates).
• Restriction on Rebate for Special Rate Income: Under the new tax regime, the Section 87A rebate will not be applicable to income taxed at special rates (e.g., Sections 111A, 112). However, under the old regime, the rebate remains available for short-term capital gains under Section 111A and long-term capital gains under Section 112. Notably, no changes have been made regarding long-term capital gains on equity (Section 112A), where the rebate was never available.
• Higher TDS Thresholds for Senior Citizens and Rental Income: The TDS exemption limit on interest income for senior citizens has been increased from Rs. 50,000 to Rs. 1,00,000, providing greater financial relief to retirees. Additionally, the TDS threshold for rental income has been raised from Rs. 2,40,000 to Rs. 6,00,000, benefiting small taxpayers earning rental income.
• Extended Timeline for Filing Updated Returns: The time limit for filing an updated income tax return has been extended from 2 years to 4 years, allowing taxpayers to rectify errors, omissions, or missed filings.
• Extended Registration Period for Smaller Trusts: The registration validity for smaller charitable trusts has been increased from 5 years to 10 years, subject to the condition that their total income (before claiming tax exemptions) does not exceed Rs. 5 crores in the preceding two years.
• Extended Tax Benefits for Startups: The eligibility period for tax benefits to startups has been extended by 5 years, allowing startups incorporated until April 1, 2030, to qualify for tax deductions.
• Introduction of Deduction for NPS Vatsalya Scheme: Under the NPS Vatsalya Scheme (launched on September 18, 2024), parents or guardians can open accounts for minor children’s future financial security. Contributions made to such accounts will now qualify for a deduction of Rs. 50,000 under Section 80CCD(1B), aligning with the existing deduction available for employer contributions to NPS under the old tax regime.
• Rationalization of TDS Rates: Several TDS thresholds have been revised for better tax efficiency. Key revisions include:

• Higher TDS Rate Limited to Non-PAN Holders: The provision for higher TDS rates will now apply only in cases where the deductee does not have a Permanent Account Number (PAN). Consequently, the earlier rule imposing higher TDS on payments to non-filers of income tax returns has been removed.
• Revised TCS Threshold for LRS Remittances: The threshold for Tax Collected at Source (TCS) on remittances under the Liberalized Remittance Scheme (LRS) has been increased from 7 lakh to Rs. 10 lakh. Additionally, TCS will no longer apply to goods, though TDS on the sale of goods remains in effect.
• TCS Exemption on Education Loans: The requirement to collect TCS on education loans up to 10 lakh, when availed from specified financial institutions, has been eliminated.

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