On February 1, 2025, Finance Minister Smt. Nirmala Sitharaman presented the Union Budget 2025 in Parliament, along with the Finance Bill 2025, which proposes amendments to tax and corporate laws. The Budget primarily focuses on boosting consumption by reducing income taxes, allowing more money to remain in the hands of average Indians. Starting April 1, individuals earning up to Rs 12 lakh will be exempt from tax, and tax slabs for various income levels have been revised. The new tax regime aims to encourage more people to shift from the old system, which had numerous exemptions. Whether taxes increase or decrease will depend on one's previous tax slab and the number of exemptions claimed. Overall, the Budget intends to leave more income in people's pockets for either spending or investing.

This outlines the key policy changes in Direct Tax Laws and the rulings affected by the Finance Bill, 2025. 

********************

► Changes in Slab Rate in New Tax Regime

• Tax slabs for Individual, HUF, AOP, BOI, artificial juridical person under the New Tax Regime for AY 2026-2027

It is proposed that the following tax rates will be applicable under the New Tax regime for Individual, HUF, AOP, BOI, artificial juridical person, which are as under:

Total Income	Tax Rates
Upto Rs. 4 lacs	0%
Rs. 4 lacs to Rs. 8 lacs	5%
Rs. 8 lacs to Rs. 12 lacs	10%
Rs. 12 lacs to Rs. 16 lacs	15%
Rs. 16 lacs to Rs. 20 lacs	20%
Rs. 20 lacs to Rs. 24 lacs	25%
Above Rs. 24 lacs	30%

• Tax rates under Old Tax regime for Individual, HUF, AOP, BOI, artificial juridical person for AY 2026-2027

It is proposed that the following tax rates will be applicable under the Old Tax regime for Individual, HUF, AOP, BOI, artificial juridical person, which are as under:

Total Income	Rate of Tax
Upto Rs. 2,50,000	Nil
From Rs. 2,50,001 to Rs. 5,00,000	5%
From Rs. 5,00,001 to Rs. 10,00,000	20%
Above Rs. 10,00,000	30%

• Tax rates under Old Tax regime for senior citizen resident of India and age 60 years or above

Total Income	Rate of Tax
Upto Rs. 3,00,000	Nil
From Rs. 2,50,001 to Rs. 5,00,000	5%
From Rs. 5,00,001 to Rs. 10,00,000	20%
Above Rs. 10,00,000	30%

• Tax rates under Old tax regime for super senior citizen resident of India and age of 80 years or above

Total Income	Rate of Tax
Upto Rs. 5,00,000	Nil
From Rs.5,00,001 to Rs. 10,00,000	20%
Above Rs. 10,00,000	30%

Note: The new tax regime under section 115BAC is now the default option. Taxpayers who wish to opt for the old tax regime must do so by the due date for filing their income tax return under section 139(1). If the return is filed late, taxpayers will not be allowed to choose the old tax regime.

► Rebate under section 87A

Section 87A provides a full income tax rebate to individual residents in India with income up to Rs. 5 lakh. The Finance Act, 2023 raised the income limit for the rebate to Rs. 7 lakh, with marginal relief for amounts above this, for those taxed under Section 115BAC. Special taxes, like capital gains, are excluded. From FY 2026-27, the rebate limit will rise to Rs. 12 lakh, with a higher rebate of Rs. 60,000, and a new rule will ensure the rebate does not exceed the tax payable under Section 115BAC

► Annual value of the self-occupied property simplified

Section 23 of the Income Tax Act deals with the determination of the annual value of house property. Currently, under sub-section (2), if the property is used by the owner for personal residence or if the owner cannot occupy it due to employment or business reasons at another location, the annual value is considered nil. However, under sub-section (4), this benefit is only applicable to two specified house properties.

To simplify the provisions, it is proposed to amend sub-section (2) to allow the annual value of a house or part of it to be considered nil if the owner occupies it for personal residence or cannot occupy it for any reason. The restriction of applying this benefit to only two properties will still remain under sub-section (4).

This amendment will take effect from April 1, 2025, and apply for the assessment year 2025-26 and onwards.

Note: Overruled Mumbai ITAT in [TS-6964-ITAT-2016(Mumbai)-O] wherein ITAT held that vacancy allowance u/s 23(1)(c) available only when property actually let, ‘intention-to-let’ irrelevant and Pune ITAT in [TS-452-ITAT-2012(Pune)-O] disallowed vacancy allowance observing that it could not be said that the property was "intended to be let out."

Affirmed Bangalore ITAT in [TS-5708-ITAT-2011(Bangalore)-O] No tax on deemed rent for vacant inhabitable house - Vacant house not rented throughout the year despite owner's efforts qualify for benefit of Sec 23(1)(c)

► Incentives to International Financial Services Centre

The government propose to extend certain tax concessions for the International Financial Services Centre (IFSC) until March 31, 2030, to support its growth. These changes will be effective from April 1, 2025

► Exemption on life insurance policy from IFSC Insurance offices

Clause (10D) of section 10 provides an exemption for sums received under life insurance policies, including bonuses, with conditions on premium limits. For unit-linked policies, the annual premium should not exceed Rs. 2.5 lakhs, and for other life insurance policies, it should not exceed Rs. 5 lakhs. To align the tax treatment for non-residents purchasing life insurance from IFSC Insurance Offices with policies from foreign jurisdictions, the government proposes to exempt proceeds from IFSC-issued life insurance policies from the premium limits. These changes will take effect from April 1, 2025.

► Exemption to capital gains and dividend for ship leasing units in IFSC

Clause (4H) of section 10 provides tax exemptions on capital gains for non-residents or IFSC units involved in aircraft leasing when transferring equity shares of domestic companies in the same sector. Similarly, clause (34B) exempts dividends paid by IFSC units engaged in aircraft leasing to other IFSC units in the same business. To extend similar benefits to the ship leasing industry, it is proposed to apply these exemptions to non-residents or IFSC units engaged in ship leasing. These amendments will take effect from April 1, 2025.

► Rationalisation of definition of 'dividend' for treasury centres in IFSC

Sub-clause (e) of clause (22) of section 2 defines dividend to include advances or loans made by a company to a shareholder or their associated concerns, under certain conditions. However, sub-clause (ii) excludes advances or loans made in the ordinary course of business by companies whose main activity is lending money.

Concerns were raised that borrowings by corporate treasury centres in IFSC from group entities could trigger deemed dividend provisions. To address this, the proposal suggests amending clause (22) to exclude from the definition of 'dividend' any loan or advance between two group entities, where one is a finance company or finance unit in IFSC, and the parent entity is listed on a foreign stock exchange (outside India), with specific conditions on group and parent entities to be prescribed. These changes will take effect from April 1, 2025.

► Simplified regime for fund managers based in IFSC

Section 9A provides that fund management activities conducted by an eligible fund manager on behalf of an eligible investment fund will not constitute a business connection in India, subject to certain conditions. One such condition requires that Indian residents' participation in the fund must not exceed 5% of its corpus.

The Central Government has the authority to relax these conditions for funds managed by eligible fund managers located in IFSC that start operations by March 31, 2024.

To align IFSC-based fund managers with those in competing foreign jurisdictions, it is proposed to amend Section 9A: 1) Rationalizing the 5% participation condition for all eligible investment funds, determining participation as of April 1 and October 1 of the previous year, with a four-month grace period to meet the condition. 2) Maintaining the 5% condition for eligible investment funds and their fund managers, with no modifications. 3) Relaxing other conditions for eligible investment funds where the fund manager's IFSC operations commence by March 31, 2030. These changes will take effect from April 1, 2025.

► Amendment of Section 10 related to Exempt income of Non-Residents

Clause (4E) of section 10 currently exempts income accrued or received by a non-resident from the transfer of non-deliverable forward contracts, offshore derivative instruments, or over-the-counter derivatives, as well as income from distributions related to such instruments, when entered into with an offshore banking unit of an IFSC.

To further incentivize IFSC operations, it is proposed to amend clause (4E) to extend this exemption to income earned by non-residents from similar transactions with Foreign Portfolio Investors (FPIs) that are units of an IFSC, subject to prescribed conditions. This amendment will take effect from April 1, 2026, and will apply to the assessment year 2026-27 and beyond.

► Inclusion of retail schemes and Exchange Traded Funds (ETFs) in the existing relocation regime of funds of IFSCA

To further incentivize operations from the IFSC, the following amendments are proposed:

Clause (viiad) of Section 47: This clause currently allows tax-neutral treatment for transfers of shares, units, or interests during the relocation of funds to a resultant fund, provided the resultant fund is a Category I, II, or III Alternative Investment Fund located in an IFSC. It is proposed to include retail schemes and Exchange Traded Funds (ETFs) located in the IFSC, which are regulated under the International Financial Services Centres Authority Act, 2019, within the definition of "resultant fund." This will ensure that the relocation of original funds to such funds in the IFSC also remains a tax-neutral transaction. This amendment will take effect from April 1, 2026, and will apply to the assessment year 2026-27 and subsequent years.

► Extension of date of making investment by Sovereign Wealth Funds, Pension Funds & others and rationalisation of tax exemptions

Clause (23FE) of section 10 provides tax exemptions to specified persons like Sovereign Wealth Funds (SWFs) and Pension Funds (PFs) on income such as dividends, interest, and long-term capital gains from investments in India's infrastructure sector. The current provision requires investments to be made between April 1, 2020, and March 31, 2025.

Given the long-term nature of infrastructure projects and the important role of foreign SWFs and PFs in funding them, there is a proposal to extend this deadline. Additionally, recent amendments under the Finance (No. 2) Act, 2024, reclassified capital gains from unlisted debt securities as short-term, which could affect the tax exemption on long-term capital gains for SWFs and PFs. To address this, the proposal suggests:

1. Ensuring that long-term capital gains, regardless of being deemed short-term under section 50AA, remain exempt under clause (23FE).
2. Extending the investment deadline from March 31, 2025, to March 31, 2030.

These changes will take effect from April 1, 2025.

► Scheme of presumptive taxation extended for non-resident providing services for electronics manufacturing facility

To position India as a global hub for Electronics System Design and Manufacturing, the Government of India has approved a comprehensive program for the development of the semiconductor and display manufacturing ecosystem, supported by the Ministry of Electronics and Information Technology. This initiative aims to establish electronics manufacturing facilities in India, with non-residents playing a key role in providing technology and support services.

To promote and provide certainty for this industry, it is proposed to introduce a presumptive taxation regime for non-residents providing services or technology to Indian resident companies involved in setting up or operating electronics manufacturing facilities. A new section, 44BBD, will be introduced, which deems 25% of the aggregate amount received by non-residents for providing such services or technology as profits and gains from this business. This will effectively reduce the tax payable to less than 10% of the gross receipts for the non-resident companies.

This amendment will take effect from April 1, 2026, and will apply from the assessment year 2026-27 onwards.

► Extension of benefits of tonnage tax scheme to inland vessels

The Tonnage Tax Scheme, introduced in the Finance Act of 2004, aimed to promote the Indian shipping industry by allowing qualifying shipping companies to choose between the tonnage tax regime or the normal corporate tax regime.

Representations have been made to extend the tonnage tax scheme to inland vessels to boost the inland water transportation sector, which currently faces a shortage of vessels and requires significant investment. To address this, the proposal is to include inland vessels, registered under the Inland Vessels Act, 2021, within the scope of the tonnage tax scheme. This includes defining inland vessels in section 115V of the Act, in line with the Inland Vessels Act, 2021, and making other necessary amendments to extend the benefits of the scheme to inland vessels.

These amendments will take effect from April 1, 2026, and apply from the assessment year 2026-27 onward.

► Simplification of tax provisions for charitable trusts/institutions

Income of trusts or institutions registered under section 12AB of the Income Tax Act is exempt, provided they meet the specified conditions. Section 12A outlines the procedure for applying for registration to claim exemptions under sections 11 and 12. Section 12AB details the approval and cancellation process for such registrations. However, under section 13, the exemption under sections 11 and 12 is not available if the trust or institution fails to meet the required conditions specified in the Act.

► Rationalisation of 'specified violation' for cancellation of registration of trusts or institutions

Sub-section (4) of section 12AB allows for the cancellation of a trust or institution's registration if specified violations are identified by the Principal Commissioner or Commissioner during any previous year. One such violation, as per the Explanation to the sub-section, is when the application for registration is incomplete or contains false or incorrect information.

It has been noted that even a minor default in the application process could lead to the cancellation of a trust's registration, making it liable to tax on accreted income under Chapter XII-EB of the Act.

To address this, the proposal is to amend the Explanation to sub-section (4) of section 12AB, clarifying that an incomplete application for registration will no longer be considered a "specified violation" for the purposes of registration cancellation.

These amendments will take effect from April 1, 2025.

Note: Affirmed Chennai ITAT in [TS-5029-ITAT-2025(Chennai)-O] wherein ITAT directs CIT(E) to grant registration u/s 12AB, despite inadvertent procedural error in filing application and Surat ITAT in [TS-6245-ITAT-2024(Surat)-O] directs rectification of error; CIT(E) to reevaluate application u/s 12A(1)(ac)(iii) instead of (iv)

► Period of registration of smaller trusts or institutions

Section 12AB currently provides for registration of trusts or institutions for 5 years or provisional registration for 3 years, after which they need to apply for further registration. This process can increase the compliance burden, particularly for smaller trusts or institutions.

To reduce this burden, it is proposed to extend the period of registration from 5 years to 10 years for trusts or institutions that meet certain conditions. Specifically, the trust or institution must have applied under certain clauses of section 12A, and its total income (without considering sections 11 and 12) must not exceed Rs. 5 crores in each of the two years preceding the year in which the application is made.

These changes aim to provide relief to smaller trusts and institutions and will take effect from April 1, 2025.

Note: The proposed relaxation aims to address the issue highlighted by the Madras High Court in [TS-5155-HC-2024(Madras)-O], where the Court ruled that a portion of CBDT Circular No. 6 of 2023, dated May 24, 2023, which did not extend the deadline for filing applications for regular registration of new provisionally registered trusts under Section 80G, was illegitimate, arbitrary, and a violation of Article 14, thus being ultra vires the Constitution of India.

► Rationalisation of persons specified under sub-section (3) of section 13 for trusts or institutions

Section 13 of the Income Tax Act specifies that the exemptions under sections 11 and 12 do not apply to a trust or institution if its income or property is used for the benefit of certain individuals, including those who have made substantial contributions to the trust or institution. A "substantial contribution" is defined as any person whose total contribution exceeds Rs. 50,000 by the end of the relevant previous year, along with their relatives and concerns in which they have a substantial interest.

Suggestions have been made that providing details about persons making substantial contributions, their relatives, and their concerns creates difficulties for trusts and institutions.

To address this, it is proposed to amend sub-section (3) of section 13 to:

1. Increase the threshold for substantial contributions to Rs. 1 lakh during the relevant year or Rs. 10 lakh in total contributions by the end of the relevant previous year.
2. Exclude relatives of such persons from the provisions of sub-section (3).
3. Exclude concerns in which these individuals have a substantial interest from being considered under sub-section (3).

These changes are aimed at reducing compliance burdens and will take effect from April 1, 2025.

Note: Proposed amendment is in the line of CBDT Circular, clarifies the disclosure requirements for persons making substantial contributions to a trust or institution under Section 13(3)(b), where the total contribution exceeds Rs. 50,000 in the relevant previous year.

► Rationalisation in taxation of Business trusts

The Finance (No.2) Act, 2014 introduced a special taxation regime for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs), commonly referred to as business trusts, to support infrastructure financing and investment. These trusts invest in special purpose vehicles (SPVs) using equity or debt instruments.

Under section 115UA, business trusts enjoy a pass-through status for interest income, dividend income from SPVs (in the case of both REITs and InVITs), and rental income (in the case of REITs). Such income is taxable in the hands of the unit holders, unless specifically exempted.

Sub-section (2) of section 115UA currently imposes tax on the total income of business trusts at the maximum marginal rate, subject to sections 111A and 112. However, it has been noted that section 112A, which deals with the taxation of long-term capital gains from equity shares, equity-oriented funds, and business trust units, is not referenced in sub-section (2).

To address this, it is proposed to amend sub-section (2) of section 115UA to include a reference to section 112A, ensuring that the total income of a business trust is taxed at the maximum marginal rate, subject to sections 111A, 112, and 112A.

This amendment will take effect from April 1, 2026, and apply to the assessment year 2026-27 and subsequent years.

► Harmonisation of Significant Economic Presence applicability with Business Connection

Section 9 of the Income Tax Act deals with income deemed to accrue or arise in India. Clause (i) of section 9 specifies that income arising from any business connection in India, whether directly or indirectly, is considered as income accruing in India.

Currently, clause (b) of Explanation 1 to section 9(1)(i) provides that a non-resident's income from operations that are limited to purchasing goods in India for export is not considered to accrue or arise in India.

Explanation 2A to section 9(1)(i) introduces the concept of "significant economic presence," which can constitute a business connection in India. It includes transactions related to goods carried out by a non-resident with any person in India.

Suggestions have been made that due to the definition of significant economic presence, the exclusion for non-residents who only purchase goods in India for export might be removed, potentially treating such income as accruing in India.

To address this concern, it is proposed to amend Explanation 2A to clarify that activities or transactions confined to the purchase of goods for export will not be considered as significant economic presence, aligning it with the existing provisions in Explanation 1 to section 9(1)(i).

This amendment will take effect from April 1, 2026, and apply for the assessment year 2026-27 and subsequent years.

Note: The proposed amendment aims to address and correct the current situation by aligning the provision of Expl. 2A with Expl. 1 to clause (i) of sub-section (1) of section 9, related to business connection. This aligns with the ruling in the Bangalore ITAT case [TS-7-ITAT-2014(Bangalore)-O], where the ITAT held that the procurement activities conducted by Tesco's Indian liaison office for the purpose of export clearly fall within the scope of Explanation 1(b) of Section 9(1)(i)

► Bringing clarity in income on redemption of Unit Linked Insurance Policy

Clause (10D) of section 10 of the Income Tax Act provides tax exemption on the sum received under a life insurance policy, including any bonus on the policy, subject to a condition that the premium payable in any year should not exceed 10% of the actual capital sum assured. The Finance Act, 2021, introduced amendments to further restrict the exemption, particularly for unit-linked insurance policies (ULIPs). According to the new provision, if the total premium paid during the term of the policy exceeds Rs. 2,50,000, the exemption will not apply to ULIPs issued on or after February 1, 2021.

Currently, ULIPs are treated as capital assets when the exemption under clause (10D) does not apply. In contrast, other life insurance policies (other than ULIPs) are subject to taxation under the "Income from other sources" category when the exemption under clause (10D) is not applicable.

To rationalize these provisions for ULIPs, it is proposed to amend the law in the following ways:

1. ULIPs to which the exemption under clause (10D) does not apply will be treated as a capital asset (as per clause (14) of section 2).
2. The profits from the redemption of such ULIPs will be charged as capital gains (as per sub-section (1B) of section 45).
3. ULIPs to which exemption under clause (10D) does not apply will also be included in the definition of equity-oriented funds (as per clause (a) of the Explanation to section 112A).

These amendments aim to treat ULIPs more consistently with other financial instruments and align their taxation with capital gains.

The changes will take effect from April 1, 2026, and will apply for the assessment year 2026-27 and subsequent years.

Note: Proposed amendment is in the line of Mumbai ITAT [TS-8428-ITAT-2023(Mumbai)-O] wherein ITAT classified ULIPs policy as capital assets; AO directed to tax surrender proceeds under capital gains. 

► Amendment of Definition of 'Capital Asset'

To address the uncertainty regarding the characterization of income from transactions in securities by investment funds, it is proposed to amend the Income Tax Act.

Currently, Section 2(14) of the Act defines a "capital asset" to include property of any kind, with specific exclusions, such as stock-in-trade and personal assets. Securities held by Foreign Institutional Investors (FIIs) are also considered capital assets under the Act, provided their investments comply with the regulations under the Securities and Exchange Board of India (SEBI) Act, 1992.

However, investment funds have faced ambiguity in determining whether the income from transactions involving securities should be treated as capital gains or business income, leading to uncertainty.

To resolve this issue, the proposed amendment clarifies that any securities held by investment funds under Section 115UB, which are invested in accordance with SEBI regulations, will be treated as capital assets. As a result, income arising from the transfer of such securities will be considered capital gains, rather than business income.

This amendment will provide greater certainty for investment funds in terms of tax treatment and ensure a consistent approach to the classification of income from securities transactions.

The changes will take effect from April 1, 2026, and will apply for the assessment year 2026-27 and subsequent years.

► Extension of timeline for tax benefits to start-ups

The existing provisions of Section 80-IAC of the Income Tax Act provide a tax deduction of 100% of the profits and gains derived from an eligible business by a qualifying start-up for three consecutive assessment years within a ten-year period, starting from the year of incorporation. The conditions for claiming this deduction are:

1. The total turnover of the business does not exceed 100 crore rupees.
2. The start-up holds a certificate of eligible business from the Inter-Ministerial Board of Certification.
3. The start-up must be incorporated on or after April 1, 2016, but before April 1, 2025.

To encourage the growth of start-ups and foster innovation, it is now proposed to extend the benefit provided under Section 80-IAC for an additional five years. This means that start-ups incorporated before April 1, 2030, will continue to be eligible for this deduction.

This amendment is expected to support more start-ups and give them a longer window to benefit from the tax deduction, contributing to their growth and success.

The amendment will come into effect on April 1, 2025, and will apply for the assessment year 2025-26 and subsequent years.

► Rationalisation of taxation of capital gains on transfer of capital assets by non-residents

The existing provisions of Section 115AD of the Income Tax Act deal with the taxation of income received by specified funds or Foreign Institutional Investors (FIIs). It provides for a 10% tax rate on long-term capital gains arising from the transfer of securities, other than units referred to in Section 115AB.

However, there have been amendments made in the Finance (No. 2) Act, 2024, which changed the rate of taxation on long-term capital gains for all assessees—resident and non-resident—to 12.5% on certain capital assets, effective from July 23, 2024.

The only inconsistency noted was that, while the 12.5% rate was made applicable to long-term capital gains on assets mentioned in Section 112A, the same rate was not extended to long-term capital gains from other securities (not covered under Section 112A) for FIIs or specified funds, which continued to be taxed at 10%.

To address this disparity, it is now proposed to amend Section 115AD to align the tax rate on long-term capital gains arising from the transfer of securities (other than units under Section 115AB) for specified funds and FIIs, to the 12.5% rate. This ensures consistency in the tax treatment of long-term capital gains across different provisions of the Act.

This amendment will come into effect from April 1, 2026, and will apply to the assessment year 2026-27 and subsequent years.

► Rationalization of tax deducted at source (TDS) rates

The proposal aims to simplify Tax Deduction at Source (TDS) provisions by adjusting rates and raising the threshold limit, with the goal of improving business ease and enhancing taxpayer compliance.

1. TDS rate reduction for section 194LBC

The proposal under Section 194LBC of the Act aims to reduce the TDS rates on income payable by a securitisation trust to resident investors. Currently, the TDS rates are 25% for individuals or Hindu Undivided Families and 30% for other entities. The new proposal suggests lowering these rates to 10%, reflecting the organized and regulated nature of the sector. The amendment is set to take effect on April 1, 2025.

Change in TDS threshold w.e.f. 01.04.2025

S. No	Section	Current threshold	Proposed threshold
1.	193 - Interest on securities	Nil	Rs. 10,000/-
2.	194A - Interest other than Interest on securities	(i) Rs. 50,000/- for senior citizen; (ii) Rs. 40,000/- in case of others when payer is bank, cooperative society and post office  (iii) Rs. 5,000/- in other cases	(i) Rs. 1,00,000/- for senior citizen (ii) Rs. 50,000/- in case of others when payer is bank, cooperative society and post office  (iii) Rs. 10,000/- in other cases
3.	194 - Dividend for an individual shareholder	Rs. 5,000/-	Rs. 10,000/-
4.	194K - Income in respect of units of a mutual fund or specified company or undertaking	Rs. 5,000/-	Rs. 10,000/-
5.	194B - Winnings from lottery, crossword puzzle, etc.	Aggregate of amounts during the financial year exceeding Rs. 10,000/-
6.	194BB - Winnings from horse race
7.	194D - Insurance commission	Rs. 15,000/-	Rs. 20,000/-
8.	194G - Income by way of commission, prize etc. on lottery tickets	Rs. 15,000/-	Rs. 20,000/-
9.	194H - Commission or brokerage	Rs. 15,000/	Rs. 20,000/-
10.	194-I Rent	Rs. 2,40,000/- during the inancial year	Rs. 50,000/- per month or part of a month
11.	194J - Fee for professional or technical services	Rs. 30,000/	Rs. 50,000/-
12.	194LA - Income by way of enhanced compensation	Rs. 2,50,000/-	5,00,000/-

► Section 193 - Interest on securities

The proposal under Section 193 of the Act introduces a threshold for Tax Deduction at Source (TDS) on interest income from securities. Currently, there is no minimum limit for TDS on such interest. The amendment suggests that TDS will be applicable only if the total interest income exceeds Rs. 10,000 in a financial year. Additionally, the existing provision that exempts TDS on interest up to Rs. 5,000 for individuals or Hindu Undivided Families (HUF) on debentures will be adjusted accordingly. These changes will come into effect on April 1, 2025.

► Section 194 – Dividends

The proposal under Section 194 of the Act suggests increasing the threshold for exemption from Tax Deduction at Source (TDS) on dividends paid to individual shareholders. Currently, no TDS is required if the dividend amount does not exceed Rs. 5,000 in a financial year. The amendment proposes raising this threshold to Rs. 10,000. This change will take effect from April 1, 2025.

► Section 194A - Interest other than interest on securities

The proposal under Section 194A of the Act aims to increase the threshold for Tax Deduction at Source (TDS) on interest income, particularly for payments made by co-operative societies. Currently, co-operative societies must deduct tax when interest income exceeds Rs. 50,000 for senior citizens and Rs. 40,000 for others. The proposed change seeks to raise these threshold limits. It is proposed to increase the threshold for requirement to deduct tax at source in section 194A as below and these amendments will take effect from the 1st day of April 2025.

S. No	Payer	Current threshold to deduct TDS	Proposed threshold to deduct TDS	Current threshold to deduct TDS when payee is senior citizen	Proposed threshold to deduct TDS when payee is senior citizen
1.	A banking company to which he Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act)	Rs. 40,000/-	Rs. 50,000/-	Rs. 50,000/-	Rs.1,00,000/-
2.	A co-operative society engaged in carrying on the business of banking	Rs. 40,000/-	Rs. 50,000/-	Rs. 50,000/-	Rs. 1,00,000/-
3.	on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf	Rs. 40,000/-	Rs. 50,000/-	Rs. 50,000/-	Rs. 1,00,000/-
4.	Any other case	Rs. 5,000/-	Rs. 10,000/-	Rs. 5,000/-	Rs. 10,000/-
5.	A cooperative society referred to in clause (v) and clause (viia) of sub-section (3) of section 194A	Rs. 40,000/-	Rs. 50,000/-	Rs. 50,000/-	Rs. 1,00,000/-

► Section 194B - Winnings from lottery or crossword puzzle

The proposal under Section 194B of the Act suggests removing the Rs. 10,000 threshold for the aggregate winnings during the financial year. Instead, TDS will be applicable on any single transaction where the winnings exceed Rs. 10,000. This amendment will take effect from April 1, 2025.

► Section 194BB - Winnings from horse race

The proposal under Section 194BB of the Act suggests removing the Rs. 10,000 threshold for the aggregate winnings during the financial year. Instead, TDS will be applicable on any single transaction where the winnings exceed Rs. 10,000. This amendment will come into effect from April 1, 2025.

► Section 194D - Insurance commission

The proposal under Section 194D of the Act recommends raising the threshold for TDS on remuneration or rewards for soliciting or procuring insurance business. Currently, TDS is applicable when the payment exceeds Rs. 15,000 in a financial year. The proposed change will increase this threshold to Rs. 20,000, and it will take effect from April 1, 2025.

► Section 194G - Commission, etc., on sale of lottery tickets.

The proposal under Section 194G of the Act recommends increasing the threshold for TDS on commission, remuneration, or prizes paid to individuals involved in the distribution or sale of lottery tickets. Currently, TDS is applicable when payments exceed Rs. 15,000. The proposed change will raise this threshold to Rs. 20,000, and it will be effective from April 1, 2025.

► Section 194H - Commission or brokerage

The proposal under Section 194H of the Act suggests raising the threshold for TDS on commission or brokerage payments to a resident, excluding insurance commissions. Currently, TDS applies when the payment exceeds Rs. 15,000 in a financial year. The proposal seeks to increase this limit to Rs. 20,000, with the change set to take effect from April 1, 2025

► Section 194-I – Rent

Section 194-I of the Act currently requires TDS on rental income exceeding Rs. 2,40,000 in a financial year. The proposal suggests raising this threshold to Rs. 50,000 per month instead. This change will take effect from April 1, 2025.

► Section 194J - Fees for professional or technical services.

Section 194J of the Act requires TDS on payments made by non-individuals or Hindu undivided families to a resident for professional or technical services, fees, commission, royalty, or sums under section 28(va), excluding those covered under section 192. Clause (B) of the proviso to sub-section (1) sets the TDS deduction threshold for the financial year. The proposal aims to increase these thresholds, with the change set to take effect from April 1, 2025. 

S. No	Nature of sum	Current threshold to deduct TDS	Proposed threshold
1.	Fees for professional services	Rs. 30,000/-	Rs. 50,000/-
2.	Fees for technical services	Rs. 30,000/-	Rs. 50,000/-
3.	Royalty	Rs. 30,000/-	Rs. 50,000/-
4.	Any sum referred to in clause (va) of section 28	Rs. 30,000/-	Rs. 50,000/-

► Section 194K - Income in respect of units

Section 194K of the Act requires TDS at a rate of 10% on income paid to a resident from units of a Mutual Fund, specified undertaking, or specified company, if the income exceeds Rs. 5,000 in a year. The proposal suggests increasing the threshold for TDS deduction under this section from Rs. 5,000 to Rs. 10,000. This amendment will be effective from April 1, 2025.

► Section 194LA - Payment of compensation on acquisition of certain immovable property

Section 194LA of the Act mandates TDS at a rate of 10% on compensation or enhanced compensation paid for the compulsory acquisition of immovable property (excluding agricultural land), if the amount exceeds Rs. 2,50,000 in a financial year. The proposal seeks to raise the threshold for TDS deduction under this section from Rs. 2,50,000 to Rs. 5,00,000. This amendment will take effect from April 1, 2025.

► Definition of "forest produce" rationalised

Section 206C(1) of the Act currently mandates TCS at 2.5% on the sale of certain forest goods like timber and forest produce. To clarify, it is proposed that "forest produce" will be defined based on the Indian Forest Act, 1927, or relevant State laws. Additionally, TCS will only apply to forest produce obtained under a forest lease, excluding timber and tendu leaves. These changes will be effective from April 1, 2025.

S No	Nature of goods	Percentage
(1)	(2)	(3)
(iii)	Timber or any other forest produce (not being tendu leaves) obtained under a forest lease	Two per cent
(iv)	Timber obtained by any mode other than under a forest lease	Two per cent

Note: Calcutta HC in, [TS-5830-HC-2022(Calcutta)-O] explained ‘forest produce’ and holds Timber Processed in Sawmills or Used in Manufacturing Exempt from TCS under Section 206C(1)

► Reduction in compliance burden by omission of TCS on sale of specified goods

Section 206C(1H) of the Act requires sellers to collect TCS at 0.1% on sales exceeding Rs. 50 lakhs in a previous year, while Section 194Q mandates buyers to deduct TDS at 0.1% on purchases above Rs. 50 lakhs. The provisions of both TCS and TDS applied to the same transaction, creating compliance challenges for sellers, as they have to check if buyers are adhering to TDS requirements under Section 194Q. To simplify the process and reduce the compliance burden, it is proposed that TCS under Section 206C(1H) will not apply if TDS has been deducted under Section 194Q, effective from April 1, 2025

► Amendments proposed in provisions of Block assessment for search and requisition cases under Chapter XIV-B

The Finance (No. 2) Act, 2024, introduced the concept of block assessment under Chapter XIV-B of the Act for searches initiated or requisitions made on or after September 1, 2024. It is proposed to include "virtual digital asset" in the definition of "undisclosed income" under Section 158B.

Further, Section 158BA amendments include:

1. Aligning sub-sections (2), (3), and (5) by adding "recomputation", "reference", or "order" in sub-section (5).
2. Changing the wording in sub-section (4) from "pending" to "required to be made" for subsequent search or requisition.
3. Section 158BB is proposed to be amended to replace "total income disclosed" with "undisclosed income" and make changes to how income is considered in the block period, including a clear approach for income declared in returns filed before the search or requisition.
4. Clarifications regarding international or specified domestic transactions are proposed under sub-section (3) of Section 158BB, ensuring they are not part of the block period income.
5. A change in the time limit for block assessment completion under Section 158BE from 12 months from the execution of the last authorisation to 12 months from the end of the quarter in which the last authorisation is executed.

These amendments will take effect from February 1, 2025.

Note: Starting 01.02.2025, ‘Virtual Digital Assets’ including cryptocurrencies, will be considered undisclosed income, requiring mandatory disclosure of transaction details.

► Non-applicability of Section 271AAB of the Act

The current provisions of sub-section (1A) of section 271AAB of the Act relate to penalties for searches initiated after December 15, 2016. With the introduction of 'Block Assessment' under Chapter XIV-B for searches initiated on or after September 1, 2024, there is a proposal to clarify that the provisions of section 271AAB will not apply to searches initiated under section 132 on or after September 1, 2024. This is to remove any ambiguity about its applicability to such searches. The amendment will take effect from September 1, 2024

► Amendments proposed in sections 132 and 132B for rationalising provisions

Section 132 of the Act deals with search and seizure. Currently, sub-section (8) requires approval for retaining seized books of accounts or documents within 30 days from the assessment, reassessment, or recomputation order. However, in group cases, assessments for different assessees may be passed at different times, making it difficult to manage the retention of seized documents, especially if they relate to ongoing assessments. To ease this process, it is proposed to amend the time limit for approval to one month from the end of the quarter in which the order is made.

Additionally, Explanation 1 to section 132 and section 132B will be amended to align with the introduction of block assessments under Chapter XIV-B. The term "authorisation" will be replaced with "authorisations" to reflect this change, and the reference to section 158BE will be updated to section 158B.

These amendments will take effect from April 1, 2025

► Time limit to impose penalties rationalised

Section 275 of the Act currently provides different time limits for imposing penalties in various cases, such as when a case is under appeal before the ITAT, JCIT (Appeal), or Commissioner (Appeal), making it challenging to track multiple time-barring dates for tax administration. To simplify this process, it is proposed to amend section 275 so that any penalty order under Chapter XXI must be passed within six months from the end of the quarter in which the connected proceedings are completed, or when the appeal order, revision order, or penalty notice is received or issued, as applicable.

Additionally, section 246A of the Act will be amended to reflect the updated reference to section 275.

These changes will take effect from April 1, 2025.

► Clarification regarding commencement date and the end date of the period stayed by the Court

Certain provisions of the Act, including sections 144BA, 153, 153B, 158BE, 158BFA, 263, 264, and Rule 68B of Schedule-II, allow for the exclusion of time during which proceedings are stayed by a court order or injunction when computing the time limit for concluding the proceedings. However, there was ambiguity regarding the exact start and end dates for the period to be excluded. To address this, it is proposed to amend these provisions to clarify that the excluded period begins on the date the stay is granted and ends when the certified copy of the order vacating the stay is received by the jurisdictional Principal Commissioner or Commissioner (or the Approving Panel in the case of section 144BA).

This amendment will take effect from April 1, 2025.

► Rationalisation of provisions related to carry forward of losses in case of amalgamation

Sections 72A and 72AA of the Act deal with the carry-forward and set-off of accumulated losses and unabsorbed depreciation in cases of amalgamation or business reorganization. These provisions allow the accumulated losses of the amalgamating (predecessor) entity to be carried forward by the amalgamated (successor) entity. Section 72 also sets a limit on carrying forward business losses for more than eight assessment years.

To clarify and align with Section 72, it is proposed to amend Sections 72A and 72AA to ensure that losses of the predecessor entity, carried forward to the successor entity, can only be carried forward for a maximum of eight years after the assessment year in which the loss was originally computed. This amendment is aimed at preventing the perpetual carry-forward of losses across multiple amalgamations and ensuring that losses cannot be carried forward indefinitely.

These amendments will apply to amalgamations and business reorganizations that occur on or after April 1, 2025, and will take effect from April 1, 2026.

Note: There is uncertainty regarding whether the carry-forward period for losses starts anew, lasting eight years from the appointed date of amalgamation or business reorganization. Mumbai ITAT in [TS-5478-ITAT-2007(Mumbai)-O] held accumulated losses can be carried forward for a period of 8 years from the appointed date, i.e. the date of amalgamation.

► Rationalisation of transfer pricing provisions for carrying out multi-year arm's length price determination

The transfer pricing provisions, outlined in sections 92 to 92F, guide the computation of income from international or specified domestic transactions based on the arm's length price (ALP). Section 92CA defines the procedure for referring such transactions to the Transfer Pricing Officer (TPO), while section 92C describes how to calculate the ALP. The process involves the Assessing Officer (AO) referring a transaction to the TPO, who determines the ALP. The AO then calculates the total income of the assessee in line with the ALP set by the TPO. However, since similar transactions are repeated each year, leading to compliance and administrative burdens, it is proposed to assess transfer pricing in blocks. The ALP determined for a given year would apply to similar transactions in the following two years to reduce repetitive work.

The new provisions related to reference to the Transfer Pricing Officer (TPO) are as follows:

1. The assessee must exercise an option (or multiple options) in a prescribed form, manner, and within a specified time frame, as per the new sub-section (3B) in section 92CA.
2. The TPO has one month from the end of the month in which the option is exercised to issue an order declaring whether the option is valid, subject to prescribed conditions (under new sub-section (3B) in section 92CA).
3. If the TPO declares the option as valid, the process will proceed accordingly.

The proposed changes to transfer pricing provisions aim to streamline the process of determining arm's length price (ALP) for international and specified domestic transactions:

1. The ALP set for a transaction in one year will apply to similar transactions in the next two consecutive years.
2. The TPO will determine the ALP for these years, and the AO will recompute the assessee's total income based on the TPO’s order.
3. No further reference to the TPO will be needed for such transactions once the ALP is determined.
4. If a reference is made after the ALP declaration, it will be treated as invalid.
5. This process does not apply to proceedings under Chapter XIV-B.
6. The Board can issue guidelines to address difficulties in implementing these changes, and such guidelines will be binding on both the authorities and the assessee.

The provisions for exercising the option related to transfer pricing and subsequent proceedings will not apply to any proceedings under Chapter XIV-B. If any issues arise in implementing these provisions (sub-sections 3B and 4A of section 92CA), the Board can issue guidelines, with the approval of the Central Government, to resolve the difficulties. These guidelines will be presented before Parliament and will be binding on both the income-tax authorities and the assessee.

► Recomputation of income under section 155

A new sub-section (21) will be added to section 155, stating that if the ALP for an international or specified domestic transaction is determined for a previous year, and the TPO validates the option exercised by the assessee for the two following consecutive years, the following will apply:

1. Recomputation by AO: The Assessing Officer (AO) will recompute the assessee’s total income for those two consecutive years by amending the assessment order or intimation, in line with the ALP determined by the TPO. The AO must also consider any directions under section 144C(5), if applicable.
2. Timeline for Recomputation: The recomputation must be done within three months from the end of the month in which the assessment is completed for the previous year.
3. Application of Provisions: The first and second provisos to section 92C(4) will apply to this recomputation.
4. If Assessment/Intimation is Delayed: If the assessment or intimation is not made within the three-month period, the recomputation should still occur within three months from the date the order or intimation is made.

These amendments will be effective from April 1, 2026, and apply to the assessment year 2026-27 and subsequent years.

► Removal of higher TDS/TCS for non-filers of return of income

Sections 206AB and 206CCA of the Income Tax Act require higher tax deduction and collection rates for non-filers of income tax returns. However, stakeholders have raised concerns about the difficulty of verifying whether returns have been filed at the time of deduction or collection, leading to higher tax rates, blocked capital, and increased compliance burdens. To address these issues, the proposal is to remove both sections 206AB and 206CCA, simplifying the process for deductors and collectors. These amendments will take effect from April 1, 2025

► Increase in the limits on the income of the employees for the purpose of calculating perquisites

The current provisions under section 17(2) include certain benefits or amenities provided by an employer to an employee, such as free or concessional services, as perquisites, if the employee's salary is under Rs. 50,000. Additionally, expenses for medical travel outside India for the employee or their family are not treated as perquisites if the employee's gross income is under Rs. 2 lakh.

These income limits were set more than 20 and 30 years ago, and with changes in economic conditions, they need to be updated. It is proposed to amend section 17 to allow the rules to be adjusted, raising the income limits so that employees can receive certain benefits and medical travel expenses without these being considered perquisites. These amendments will take effect from April 1, 2026, and will apply to the assessment year 2026-27 and subsequent years.

► Deduction under section 80CCD for contributions made to NPS Vatsalya

The NPS Vatsalya Scheme, launched on September 18, 2024, allows parents and guardians to open NPS accounts for their minor children. Tax benefits under Section 80CCD will be extended to contributions made to these accounts. Parents or guardians can claim a deduction of up to ₹50,000 for contributions. Withdrawals from the account will be taxed, but if the minor passes away, the deducted amount will not be taxed as the parent’s income. Additionally, partial withdrawals for specific needs like education or illness will not be included in the parent’s income, up to 25% of the contributions.

These amendments will take effect from April 1, 2026, and apply to the 2026-27 assessment year and beyond.

► Exemption to withdrawals by Individuals from National Savings Scheme from taxation

Section 80CCA currently allows individuals and Hindu Undivided Families (HUFs) to claim deductions for deposits made in the National Savings Scheme (NSS). However, this provision has been sunset since April 1, 1992, and no deductions are allowed for deposits made after that date. Withdrawals of these amounts, including accrued interest, are taxable. Due to a Department of Economic Affairs notification on August 29, 2024, stating that no interest will be paid on NSS balances after October 1, 2024, representations were made requesting relief for individuals facing hardship due to this change.

To address this, it is proposed to amend section 80CCA to exempt withdrawals made on or after August 29, 2024, for deposits (including accrued interest) made before April 1, 1992, for which deductions had been claimed.

This amendment will have retrospective effect from August 29, 2024

► TAX ADMINISTRATION

The Finance Act 2022 introduced the taxation of virtual digital assets (VDAs), with a 30% tax rate on transfers and a 1% tax deduction on VDA transactions under section 194S. To further regulate VDA transactions, a new section 285BAA is proposed, requiring reporting entities to submit information on crypto-asset transactions to the income-tax authority. If defects or inaccuracies are found in the statements, the reporting entity will be given an opportunity to rectify them. Failure to submit the statement on time may result in notices from the tax authority. The Central Government will also specify rules for registration and due diligence regarding crypto-assets. Additionally, the definition of VDA will be expanded to include any crypto-asset relying on cryptographic technology for transactions.

These changes will take effect from April 1, 2026.

• Increasing time limit available to pass order under section 115VP

Section 115VP of the Income Tax Act deals with the process of opting for the tonnage tax scheme, which allows companies involved in shipping to compute their income based on tonnage rather than traditional methods. Under the current provisions, the Joint Commissioner has to approve or reject the application for this scheme within one month of receiving the application, but this timeframe is often insufficient for verifying documents and conducting necessary inspections.

To address this issue, it is proposed to amend sub-section (4) of section 115VP to extend the deadline for passing the approval or rejection order. For applications received on or after April 1, 2025, the order must be passed within three months from the end of the quarter in which the application was received.

This amendment will come into effect from April 1, 2025.

• Excluding the period such as court stay etc. for calculating time limit to pass an order

Sub-section (7A) of section 206C of the Income Tax Act sets a time limit for deeming a person as an assessee in default for failing to collect tax, which is six years from the end of the financial year when tax was due or two years from the delivery of a correction statement, whichever is later.

To address the need to exclude certain time periods, such as when proceedings are stayed by a court order, it is proposed to amend sub-section (7A). The amendment will align the time limit with the relevant provisions of section 153 of the Act, which already accounts for exclusions like time spent during stays or other delays.

This change will take effect from April 1, 2025.

• Exemption from prosecution for delayed payment of TCS in certain cases

Section 276BB of the Income Tax Act provides for prosecution if a person fails to pay the tax collected at source to the Central Government, with penalties including rigorous imprisonment for 3 to 7 years and fines.

It is now proposed to amend section 276BB to allow for a waiver of prosecution if the tax collected at source is paid to the Central Government on or before the due date for filing the quarterly statement under section 206C(3).

This amendment will come into effect from April 1, 2025.

• Certain penalties to be imposed by the Assessing Officer

Sections 271C, 271CA, 271D, 271DA, 271DB, and 271E of the Income Tax Act stipulate that penalties for certain non-compliance issues are to be imposed by the Joint Commissioner, even though the Assessing Officer is responsible for conducting the assessment. This creates a disconnect between the authorities handling assessment and penalty imposition

To streamline the process, it is proposed to amend sections 271C, 271CA, 271D, 271DA, 271DB, and 271E of the Income Tax Act so that penalties under these sections will be imposed by the Assessing Officer instead of the Joint Commissioner. However, if the penalty amount exceeds the limit specified in section 274(2), the Assessing Officer will need to obtain prior approval from the Joint Commissioner before passing the penalty order.

It is further proposed to make consequential amendment in clause (n) of sub-section (1) of section 246A of the Act.

Section 271BB of the Income Tax Act imposes a penalty for failure to subscribe to the eligible issue of capital under section 88A. However, since section 88A was omitted with retrospective effect from April 1, 1994, the penalty provision in section 271BB is no longer relevant. Therefore, it is proposed to omit section 271BB. This amendment will take effect from April 1, 2025

► Removing date restrictions on framing the schemes in certain cases

The Central Government has introduced several electronic measures under the Income Tax Act to minimize direct interactions between taxpayers and the Department, aiming for optimal resource utilization and a team-based assessment approach. Faceless schemes under sections 92CA, 144C, 253, and 255 were initially introduced through the Finance Acts of 2020 and 2021, with implementation challenges extending the notification deadline to 31st March, 2024 and then further to 31st March, 2025 in the Finance Act of 2024.

It is now proposed to omit the end date of 31st March, 2025, allowing the Central Government to issue directions for faceless schemes beyond that date, if necessary. This amendment will take effect from 1st April, 2025.

• Extending the processing period of application seeking immunity from penalty and prosecution

Section 270AA of the Income Tax Act outlines the procedure for granting immunity from penalties or prosecution, subject to certain conditions. Currently, under sub-section (2), an application for immunity must be made within one month of receiving a specific order, and sub-section (4) mandates that the Assessing Officer must pass an order within one month from receiving the application.

Feedback from stakeholders indicates that taxpayers are struggling to represent their cases within this limited time frame. To address this concern, it is proposed to extend the processing period for the application from one month to three months. This amendment will take effect from 1st April, 2025.

• Extending the time-limit to file the updated return

The updated return provisions under section 139(8A) of the Income Tax Act currently allow for filing an updated return within 24 months from the end of the relevant assessment year. The current system charges 25% additional income-tax for updated returns filed within 12 months, and 50% additional income-tax for returns filed after 12 months but within 24 months.

To encourage more voluntary compliance, it is proposed to:

1. Extend the filing period for an updated return from 24 months to 48 months.
2. Introduce higher additional tax rates for late filings:

• 60% tax for returns filed between 24 to 36 months.
• 70% tax for returns filed between 36 to 48 months.

No updated return can be filed if a notice under section 148A has been issued after 36 months, unless the notice is later determined to be invalid under section 148A(3), in which case the updated return can still be filed up to 48 months.

These changes will come into effect from 1st April 2025

• Extension of exemption to Specified Undertaking of Unit Trust of India (SUUTI)

SUUTI, established by the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002, has been exempt from income tax until 31st March 2025. Due to ongoing tasks like redeeming schemes and resolving pending issues, it is proposed to extend this tax exemption until 31st March 2027. The amendment will be effective from 1st April 2025.

***********************

About Taxsutra Database! 

“Taxsutra Database”, a true Income-tax research tool, is an archive of over 130180+ Income Tax Rulings reported across ITR, CTR, Taxman, ITD, TTJ, and ITR (Trib) and also includes recent ‘unreported handpicked rulings of SC, HC & ITAT’. It is a completely integrated service with the following features:   

a) Comprehensive coverage of all latest cases powered by an advanced search engine to provide a seamless user experience;

b) Effective search results supported by active filters around Court Level, Location, Case Numbers and Citation;

c) Enhanced search feature, using the Unique Bulls Eye Application, by including "Exact words", "Any of these", "none of these" options.  

d) Judicial “forward & backward reference”   

The Taxsutra Database comes at a very special Annual Subscription price of 4200+ GST AND includes an annual license to the Taxsutra Library.   

 

T: +91 95952 18026 | C:+91 93200 54016 | E: sales@taxsutra.com

Copyright © TAXSUTRA. All Rights Reserved