By Parizad Sirwalla
Budget 2025 income tax: In the run up to the Budget 2025, individual taxpayers were eagerly looking forward to favorable tax reforms. The FM seems to have brought some cheer to them through her proposals.
Recognizing the contributions of the middle class and with an objective to eventually phase out the old tax regime, various changes have been introduced in the new tax regime. The basic exemption limit has been increased from INR 3 lakhs to INR 4 lakhs. In a significant shift, the highest slab is increased from INR 15 lakhs to 24 lakhs. The other slabs and tax rates have been realigned and a new tax rate of 25% has been included. Income threshold for rebate under 87A available to resident taxpayers has been increased from INR 7 lakhs to INR 12 lakhs. For computing this threshold, special rate income (such as capital gains, lottery winnings etc.) has been specifically excluded, to also address certain ambiguities in the earlier interpretation.
With these changes, all the taxpayers in the new tax regime have some reason to celebrate, irrespective of income levels. As an illustration, a person with income up to 12 lakhs can now enjoy annual tax savings of INR 80,000 (excluding cess). At the same time, an individual with income of 18 lakhs has a tax savings upto INR 110,000 (excluding cess). The savings would be higher for income levels where surcharge is applicable.
Few amendments have been made with a view to simplify certain provisions. Earlier, in case of vacant properties, annual income could be considered as NIL for up to two self-occupied properties (SOP). While there is no change in above, to qualify as SOP, currently there is a condition that the taxpayer should not be able to reside therein due to his business or employment or profession and that taxpayer is staying in a premises not owned by him. This condition has now been done away with.
NPS Vatsalya Scheme launched in September 2024, enabled parents and guardians to start a NPS for their minor children, which on attaining majority, would be transferred to the child’s name with the accumulated corpus. As a welcome measure, the Budget has extended the deduction of INR 50,000 under section 80CCD (available in the old tax regime) to also include contributions towards this scheme. Further, it has been specified that partial withdrawals up to 25 per cent from the scheme, allowed for specified reasons, shall not be taxable.
Currently, a deduction is allowed to an individual for any amount deposited in the National Saving Scheme (NSS), prior to 1 April 1992. Any withdrawals from the scheme are held as taxable. As a notification dated 29 August 2024 specified that the balances would not earn interest, this made the depositors keen to withdraw the NSS balance. Based on various representations received, the FM has now exempted the withdrawals done post 29 August 2024, for which deduction was allowed earlier, to provide them the much-required relief.
Striking a balance between fiscal prudence and the theme of “Trust first, Scrutinize later”, the Government has enhanced timelines for filing updated returns by two more years by paying additional taxes of 60 and 70 percent respectively. This will help boost tax revenues through voluntary compliance.
Consistency and clarity has been provided in the taxability of redemption proceeds of all un-exempted ULIPs, by including them in the definition of equity – oriented fund, which was earlier only with respect to certain unexempted ULIPs.
There has been a rationalization of the various TCS/ TDS thresholds including on remittances under Liberalized remittance scheme (from INR 700,000 to INR 10,00,000 and NIL in the case of remittance for education financed by a specified loans) and interest income for senior citizens (from existing INR 50,000 to INR 100,000). This will positively impact their cash flows.
The higher TDS is proposed to be continued on assesses having invalid PAN/ non-PAN holders. However, it is proposed to remove the higher TDS/TCS on non-filers of return of income with an attempt for ease of doing business and reduce the compliance burden for taxpayers.
The FM has also promised to table the much-awaited New Income Tax Bill which aims at simplicity and reduced litigation, in the next week. All in all, the Budget endeavors to take steps to reinforce confidence and optimism in the taxpayers.
(The author is Partner and Head, Global Mobility Services, Tax, KPMG in India)