Union Budget 2025 Unveiled: A deep dive into Income Tax Changes

Union Budget 2025 has been unveiled, bringing changes to the structure of income tax. The focus of the government is still on economic growth, ease of taxation, and helping different income groups, especially the middle class. This year's budget will seek to simplify compliance with tax obligations while encouraging voluntary tax payments. Here is an overview of the revised income tax slabs, key direct tax reforms, and their broader implications.

New Income Tax Slabs

Key Highlights of Direct Tax Reforms

Any withdrawals from the accounts of the National Savings Scheme will now be exempt from tax starting 29th August 2024. This has a huge importance for the benefit of senior citizens.

The tax benefits which existed under Section 80CCD(1B) for contributions made to the NPS now extend to NPS Vatsalya contributions also. One can claim an exemption of up to Rs 50,000 in the old regime if he or she had invested in the NPS Vatsalya scheme.

In Budget 2025, Sections 206AB and 206CCA, were withdrawn. These sections had provided for higher TDS and TCS rates—either twice the prescribed rate or 5%—on non-filers with aggregate TDS/TCS of Rs. 50,000 or more. Although the intention was to encourage taxpayers, these provisions caused immense compliance difficulties, especially for businesses and small taxpayers, as it became a cumbersome process to verify return filings. Removing these sections would reduce the compliance burden and simplify the tax procedure, and the amendments are to be effective from April 1, 2025.

A new provision, Section 44BBD, is proposed to be inserted in the Income Tax Act for the Financial Year 2025-2026. It specifically introduces a presumptive taxation scheme for non-residents providing services or technology to Indian companies engaged in electronics manufacturing. Under this provision, 25 percent of amounts paid or payable to non-residents, or received or receivable by them for providing such services or technology, will be considered as their gross receipts for tax purposes. The primary motive behind this provision is to help in the facilitation of advancement of Indian electronic sector growth, through the infusing of new technology and service from international service providers. It would align with India's efforts in building up the electronics manufacturing ecosystem and attracting international expertise to accelerate innovation and growth.

The standard deduction remains the same in Budget 2025. It is Rs. 50,000 under the old regime and Rs. 75,000 in the new regime. Under the new tax regime, one can claim a rebate of Rs. 60,000, and hence zero tax liability if the taxable income is up to Rs. 12,00,000.

Future Outlook 

With Union Budget 2025, the government has taken a step towards a more taxpayer-friendly and economically supportive regime of direct tax. The budgetary incentives through revised income tax slabs available to middle-class taxpayers, on one hand, the reforms in the direct taxes would reduce compliance burden thereby promoting business growth, are the positives. Strong emphasis on voluntary compliance and digital integration in tax administration gives the government significant steps toward making a robust and transparent taxation system. The new measures are expected to enhance revenue collection while ensuring that taxpayers experience a hassle-free process, ultimately contributing to the nation's economic progress.