The Union Budget 2025 has introduced a wave of reforms to the Income Tax Act, with several key provisions that took effect from April 1, 2025, marking the start of the Financial Year 2025–26. These amendments aim to simplify compliance, enhance taxpayer benefits, and strengthen digital transparency in tax administration.
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From increased rebate ceilings to updated TDS thresholds, the government’s policy direction clearly favors reducing the burden on middle-class income earners and salaried professionals. However, with opportunity comes responsibility—navigating the new regime requires taxpayers to remain informed and proactive.
For individuals and businesses alike, overlooking even one regulatory change could result in missed benefits or unintended penalties. That’s why understanding what’s new—and what’s no longer applicable—is crucial before filing returns this year.
In this article, we outline the Top 10 Income Tax Rule Changes for FY 2025–26 and highlight what they mean for your financial planning, investments, and filing obligations. Whether you're a salaried employee, entrepreneur, or investor, this guide provides concise insights and actionable takeaways to help you optimize your tax position under the new rules.
The Government of India has updated the tax slab structure under Section 115BAC, effective from the financial year 2025–26. This new regime is designed to offer lower tax rates in exchange for giving up most deductions and exemptions. It primarily benefits individuals who prefer a simplified tax filing experience.
| New Income Slabs for FY 2025-26 | Tax Rates |
|---|---|
| Up to ₹4 lakh | NIL |
| ₹4 lakh–₹8 lakh | 5% |
| ₹8 lakh–₹12 lakh | 10% |
| ₹12 lakh–₹16 lakh | 15% |
| ₹16 lakh–₹20 lakh | 20% |
| ₹20 lakh–₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
In Budget 2024, the government announced a revision to the income tax slabs under the new tax regime. The following income slabs were applicable for the financial year 2024–25 (assessment year 2025–26). The revised structure is outlined in the table below.
| Old Income Slabs for FY 2024-25 | Tax Rates |
| Up to ₹3 lakh | NIL |
| ₹3 lakh–₹7 lakh | 5% |
| ₹7 lakh–₹10 lakh | 10% |
| ₹10 lakh–₹12 lakh | 15% |
| ₹12 lakh–₹15 lakh | 20% |
| Above ₹15 lakh | 30% |
One of the most notable updates is the increase in the standard deduction for salaried individuals—from ₹50,000 to ₹75,000. When combined with the applicable rebates, this change ensures that individuals earning up to ₹12.75 lakh annually may have zero tax liability under the new regime.
While the new regime offers simplified compliance and reduced rates, it excludes popular deductions like Section 80C (investments), 80D (health insurance), and 24(b) (home loan interest). However, certain deductions, such as 80CCD(2) for employer NPS contributions, are still allowed.
Taxpayers may choose between the new and old regimes. Salaried individuals can opt in or out annually, whereas those with business income can switch only once.
Let’s take an example. Suppose your annual taxable income is ₹10 lakh under the New Tax Regime, the tax calculation would be ₹0 on the first ₹4 lakh, ₹20,000 on the next ₹4 lakh (5%), and ₹20,000 on the remaining ₹2 lakh (10%). Hence, you would have a total tax liability of ₹40,000, excluding the cess.
Therefore, as a salaried professional, you must necessarily evaluate and assess the specific income structure and eligible deductions to find out whether the New or Old Regime offers greater benefits and fits well with your financial profile.
One of the key enhancements in Budget 2025 is the revision of the rebate under Section 87A. The rebate limit has been raised from ₹25,000 to ₹60,000, significantly improving tax relief under the new regime.
Did you know that individuals with taxable income up to ₹12 lakh may incur zero tax liability—provided their income is taxed purely at applicable slab rates and not subject to special taxation (e.g., long-term capital gains under Section 112A). However, under the Old Regime, the rebate phases out above ₹5 lakh income.
Thus, it is advisable to review your taxable income thoroughly. Those earning ≤ ₹12 lakh can opt for the New Tax Regime, provided they have minimal deduction. This change substantially strengthens the new regime’s attractiveness for middle-income earners seeking simplified compliance.
The new tax regime, governed by Section 115BAC, is designed to reduce tax rates while eliminating a wide range of exemptions and deductions—streamlining the tax structure for individual and HUF taxpayers. While some key deductions remain, many popular tax-saving instruments are no longer permitted.
Provisions Exempted Under the New Regime
Retained Under the New Regime
These retained deductions underscore the regime's core philosophy: simplified tax computation with minimal adjustments.
A Summary of Key Sections And Thresholds: Before And After
| Sections | Prior Threshold (Before 1 Apr 2025) | New Threshold (From 1 Apr 2025) |
| 193 – Interest on securities | NIL | ₹10,000 |
| 194A – Interest (senior citizens) | ₹50,000 | ₹1,00,000 |
| 194A – Interest (others, banks/co-op/post) | ₹40,000 | ₹50,000 |
| 194A – Interest (others, non-banks) | ₹5,000 | ₹₹10,000 |
| 194 (Dividend, individuals) | ₹5,000 | ₹₹10,000 |
| 194K (Mutual fund income) | ₹5,000 | ₹₹10,000 |
| 194B/194BB (Lottery/horse-race) | Aggregates > ₹10,000 (FY) | ≥ ₹10,000 (per transaction) |
| 194D (Insurance commission) | ₹15,000 | ₹20,000 |
| 194G (Commission/prize on lottery) | ₹15,000 | ₹20,000 |
| 194H (Brokerage/commission) | ₹15,000 | ₹20,000 |
| 194I (Rent) | ₹2,40,000 (per year) | ₹50,000 (per month) |
| 194J (Professional/technical fees) | ₹30,000 | ₹50,000 |
| 194LA (Enhanced compensation) | ₹2,50,000 | ₹5,00,000 |
| 194T (Remuneration to partners) | NIL | ₹20,000 |
The Income Tax Changes FY 2025-26 introduced enhanced TDS thresholds that directly benefit small taxpayers and senior citizens. These revisions are designed to minimize unnecessary tax deductions and improve liquidity, especially for individuals with modest passive income.
For instance, under the enhanced TDS thresholds 2025, if a non-senior citizen earns ₹70,000 annually as bank interest, no TDS will be deducted, as the revised threshold is now ₹50,000.
Similarly, small rent payers and pensioners with limited income streams can expect fewer TDS cuts at the source, enabling better cash flow and simplifying annual return filings under the new compliance framework.
Actionable Takeaway
Ensure timely submission of updated Form 15G or 15H based on the new income thresholds. Notify your bank or financial institution to align records with revised limits and prevent unwarranted TDS deductions. Proactive communication helps maintain compliance and avoids delays in refunds during return filing.
The TCS limit changes 2025 introduced significant amendments to Tax Collected at Source (TCS) provisions, particularly under Sections 206C(1G) and 206C(1H), aimed at reducing compliance burdens and easing remittances for individuals and businesses.
The threshold for TCS on LRS remittances has been increased from ₹7 lakh to ₹10 lakh per financial year. Notably, no TCS will apply to remittances made for educational loans used to fund overseas studies. This move under the TCS amendments, LRS 2025, provides direct relief to parents and students remitting tuition fees abroad within the revised limit.
Impact
If a parent remits ₹9.5 lakh in tuition fees for a child studying overseas, no TCS will be applicable, unlike previous years when remittances above ₹7 lakh attracted TCS.
This provision, which previously required sellers to collect TCS at 0.1% (0.075% concessional) on the sale of goods exceeding ₹50 lakh, has now been entirely removed. This simplifies accounting processes for traders and reduces the administrative load, especially for high-volume sellers.
Impact
Businesses no longer need to collect or deposit TCS on high-value domestic sales, eliminating a layer of compliance.
Actionable Takeaway
Review your TCS certificates (Form 16A) and ensure they reflect updated thresholds. Discuss with your tax advisor if you regularly engage in foreign remittances under LRS to avoid misreporting or excess deductions.
The Union Financial Budget for 2024-26 has introduced certain pivotal changes to the Tax Collected at Source (TCS) framework, notably impacting the Sections 206C(1G) and 206C(1H).
Effective from April 1, 2025, the threshold for TCS on foreign remittances under the LRS has been elevated from ₹7 lakh to ₹10 lakh per financial year. This enhancement aims to alleviate the tax burden on individuals making overseas remittances.
Previously, sellers with an annual turnover exceeding ₹10 crore were mandated to collect TCS at 0.1% on sales of goods surpassing ₹50 lakh to a single buyer. This provision has been entirely removed as of April 1, 2025. The rationale behind this elimination is to streamline tax compliance and eliminate the redundancy with Section 194Q, which requires buyers to deduct TDS on similar transactions.
Implications for Stakeholders
Actionable Takeaway
Professionals should advise clients to review their Form 16/TCS certificates to ensure they reflect the updated thresholds. For those frequently engaging in foreign remittances under LRS, it's prudent to consult with tax advisors to navigate the new provisions effectively.
Additionally, with the updated tax return extension 2025, taxpayers have an extended window to file returns, allowing ample time to incorporate these changes into their tax planning strategies.
The April 2025 Tax Rules introduce a key compliance flexibility—extending the time limit for filing an Updated Income Tax Return (ITR-U) from 12 months to 48 months from the end of the relevant assessment year (AY). This aims to encourage voluntary compliance and reduce litigation.
| Timeline For Filing Tax | Additional Tax Rebate |
| Within 12 Months | 25% |
| Within 24 Months | 50% |
| Within 36 Months | 60% |
| Within 48 Months | 70% |
This is especially relevant when taxpayers retrospectively discover undisclosed income—whether it is capital gains, foreign income, rental income, or any other taxable earnings omitted from the original return.
For example, suppose ₹1 lakh in capital gains was missed in AY 2021–22. Filing an ITR-U by 31 March 2025 (within the extended 48-month window) will trigger liability for ₹1 lakh tax + applicable interest + 70% additional tax on this amount..
Actionable Takeaway
CAs should actively monitor client portfolios to identify if any prior year omissions are identified, and act swiftly. Assess remaining time before ITR-U deadlines. Even paying 70% additional tax is financially and legally preferable to facing a 7% annual penalty and potential prosecution under Section 276CC.
As part of the Income Tax Changes FY 2025–26, the government has extended and enhanced the popular start-up tax exemption 80-IAC 2025, aimed at fostering innovation and entrepreneurship.
Start-ups incorporated on or before 31 March 2030 are now eligible to claim 100% deduction of profits and gains under Section 80-IAC for any three consecutive assessment years within ten years from incorporation.
Real-World Example
Suppose your tech start-up earns ₹50 lakh profit in its third year of inception. If you meet the conditions above, you can claim full deduction under Section 80-IAC—paying zero tax on that profit.
Actionable Takeaway
New entrepreneurs: Register promptly with DPIIT and ensure meticulous record-keeping—incorporation documents, turnover statements, and board resolutions—to avail of the 80-IAC exemption without complications during assessments.
As part of the reforms introduced in Budget 2025, new tax slab FY 2025-26, the government has revised the limits for allowable deductions on partner remuneration for partnership firms and LLPs—providing firms with greater flexibility to optimise tax and compensation structures.
The New Revised Deduction Limits Are
| Book Profit Slab | Deduction Limit |
|---|---|
| First ₹6 lakh of book profit/loss | ₹3 lakh or 90% of book profit, whichever is higher |
| Remaining balance of the book profit | 60% of that balance |
What Are the Implications?
Firms and LLPs can now pay higher partner remuneration without disproportionately increasing their own taxable income. This enables partners to draw more tax-efficient personal income while maintaining an optimised corporate tax position. It also aligns with evolving profit-sharing practices in professional firms.
Actionable Takeaway
Partnership firms and LLPs should recompute their partner remuneration structures for FY 2025-26. Work closely with your CA to ensure that profit allocation and partner pay fully leverage the updated deduction limits, maximising post-tax income for both the firm and its partners.
The ULIP tax treatment FY 2025-26 has undergone a significant shift under the latest tax reforms. High-premium Unit Linked Insurance Policies (ULIPs) now face capital gains tax on maturity or partial withdrawals if certain thresholds are breached.
Consider this scenario: you invest ₹3 lakh per year for three years (total ₹9 lakh) in a ULIP with ₹20 lakh sum assured. Since your premium exceeds 10% of the sum assured, upon maturity, any gain above your total investment of ₹9 lakh will be subject to capital gains tax.
Actionable Takeaway
Before purchasing a high-premium ULIP, carefully assess whether it crosses the 10% of sum-assured threshold. Failing to do so could lead to unexpected capital gains tax exposure, reducing your post-tax returns substantially.
The Deemed let-out property relaxation 2025 brings welcome relief to individual taxpayers managing multiple residential properties.
Previously, an individual could treat only one property as self-occupied for tax purposes. If the owner could not occupy another property due to employment, business transfer, or relocation, they were permitted to designate a second property as self-occupied—subject to providing a valid reason. All other properties were deemed let-out, and notional rental income was taxed accordingly.
Under the new Deemed let-out property relaxation 2025, individuals can now classify up to two properties as self-occupied with no requirement to provide reasons. The annual value of both properties will be considered nil, thereby exempting them from notional rental taxation.
This change offers material tax optimisation, particularly for professionals, entrepreneurs, and relocated families who maintain two homes. It eliminates the previous tax impact of holding a second property for personal use.
Actionable Takeaway
Do you own two homes? You can now declare both as self-occupied in your ITR without needing to substantiate employment or business-related reasons, streamlining compliance and reducing taxable income exposure.
As part of the equalization levy removal 2025, the government has withdrawn the 6% equalization levy previously imposed on certain digital transactions.
Earlier, companies and individuals making digital advertising payments exceeding ₹1 lakh to non-resident service providers—such as Google or Facebook—were subject to this 6% levy. It was introduced to tax the digital economy, ensuring overseas service providers contributed to Indian tax revenues.
Now, this levy has been entirely removed for such payments. This simplifies tax compliance and reduces the cost of international digital advertising.
Indian businesses, marketing agencies, and entrepreneurs who run global advertising campaigns will no longer incur this additional 6% tax on payments to foreign ad platforms.
Actionable Takeaway
Advertisers: Review and update your digital ad budgets. Your overall ad spend may now reduce by up to 6%. Confirm with your agency or accountant that the levy is no longer being applied to future ad payments.
The April 2025 Income Tax Rules, introduced through key IT Act amendments 2025, impact nearly every taxpayer segment. Professionals must stay alert to optimise compliance and reduce exposure.
The updates include revised Section 115BAC slab rates, enhanced Section 87A rebate, clarified deduction limits, extended ITR-U filing window, TCS amendments LRS 2025, repeal of Section 206C(1H), extended start-up tax exemption 80-IAC 2025, enhanced partner remuneration deductions, revised ULIP tax treatment FY 2025-26, deemed let-out property relaxation 2025, and the equalization levy removal 2025 with Section 206AB repeal.
The new slabs incentivize middle-income taxpayers to adopt the New Regime. CAs should run comparative analyses for clients, factoring in deductions vs. the Section 87A rebate, to optimise tax outcomes. Tailored slab selection can drive significant cash-flow advantages for salaried and professional clients.
Professionals must ensure clients submit updated Form 15G/15H where eligible and review banking, rental, and commission arrangements. With the enhanced TDS thresholds in 2025, failure to communicate changes may result in unnecessary deductions and reconciliation challenges, especially critical for HNIs and multi-source income holders.
With TCS amendments LRS 2025, professionals must assess the funding source (loan vs. self-funded), remittance purpose, and cumulative limits. Law firms advising on cross-border matters should ensure the TCS application is accurate, and CAs should audit remittance flows to avoid misclassification or under/over-payment scenarios.
CAs should maintain a compliance calendar to track clients nearing ITR-U deadlines. Early action mitigates the escalating 70% penalty risk. For high-net-worth clients and business owners, review past years’ disclosures, especially capital gains and rental income, to proactively leverage this extended compliance window.
Tax consultants should guide LLPs and partnerships to optimise profit-sharing under the Partner Remuneration Deduction 2025 limits. Align remuneration slabs with the new thresholds to minimise tax outgo while maintaining commercial rationale. Accurate documentation in board resolutions is critical to withstand scrutiny.
ULIP structures exceeding ₹2.5 lakh premium or 10% of the sum assured trigger capital gains tax under ULIP tax treatment for FY 2025-26. Professionals should model projected returns net of tax to advise clients accurately. For estate planning, lawyers should revisit trust and nominee strategies in light of these changes.
Deep Karia is the Director at Legalspace, a pioneering LegalTech startup that is reshaping the Indian legal ecosystem through innovative AI-driven solutions. With a robust background in technology and business management, Deep brings a wealth of experience to his role, focusing on enhancing legal research, automating document workflows, and developing cloud-based legal services. His commitment to leveraging technology to improve legal practices empowers legal professionals to work more efficiently and effectively.
