Mr. Saurav Bhattacharya (Chartered Accountant) and Ms. Anuja Talukder (B.Com LLB) discuss the objectives that drove the FM’s tax proposals and the corresponding amendments announced in the Finance Bill, 2025, along with how they may contribute to the Government’s objectives. Analysing the impact of key amendments introduced by the Bill, the authors remark, “The amendments introduced in the Bill are being viewed as reformative, aimed at the simplification of the tax system, reduction in compliance burden and promotion of economic growth. Moreover, the new Income-tax Act, will hopefully give impetus to the Government’s vision of Viksit Bharat.”

“A Comprehensive Approach to Tax Reform & Economic Development”

The eagerly awaited announcement of the year – the Union Budget 2025–26, was presented by the Finance Minister, Ms. Nirmala Sitharaman on Saturday, 1 February. This year, the anticipation was about whether the government would announce a budget that would spur consumption by the public. Not disappointing India, the Finance Minister presented a people-centric budget that aims to widen tax base, promote trade and ease-of-doing business, streamline compliances and reduce litigation.

The Finance Minister’s tax proposals were driven with the objectives of (1) personal income-tax reforms with special focus on the middle-class, (2) rationalisation of tax deducted at source (TDS)/ tax collected at source (TCS) provisions to ease difficulties, (3) encouraging voluntary compliance, (4) reducing compliance burden, (5) ease-of-doing business, and (6) employment and investment.

Here is a closer look at the objectives and the corresponding amendments announced in the Finance Bill, 2025 (Bill) and how they may contribute to the Government’s objectives.

1. Personal income-tax reforms with special focus on the middle-class

Amendments:

1. Tax rates and rebate: New tax slabs have been proposed under the new tax regime introduced by the Bill, coupled with an introduction of an enhanced rebate limit under section 87A for assessment year (AY) 2026–27. The rebate limit has increased from INR 25,000 to INR 60,000 for a total income that is increased from INR 7,00,000 to INR 12,00,000, providing substantial relief to middle-class taxpayers.   

2. Annual value of self-occupied property: The relevant provision is simplified to now provide that the annual value of the property shall be taken as nil if the owner occupies it for his/her own residence or cannot actually occupy it due to any reason. This is applicable for two house properties.

Impact:

These reforms aim to increase disposable income in the hands of the middle-class, thereby boosting consumption and economic activity. It also promises to encourage house property ownership.

2. Rationalisation of TDS/TCS provisions

Amendments:

1. Reduced TDS rates: The Bill proposes to reduce the TDS rates for various sections, such as, in case of (a) income payable by a securitisation trust to an investor is reduced from 25%/ 30% to 10%; and (b) income by way of remuneration or reward for soliciting or procuring an insurance business will be subject to TDS if it exceeds INR 20,000 (the amount is increased by INR 5,000).

2. Increase in threshold limits: The threshold limits for TDS under several sections have been increased, such as, section 194A – interest other than interest on securities (from INR 40,000 to INR 50,000 for non-senior citizens and from INR 50,000 to INR 1,00,000 for senior citizens).

3. Removal of higher TDS/TCS in case of non-filers: Sections 206AB and 206CCA require higher TDS/TCS rates to be applicable to non-filers of income-tax returns (ITR). These provisions have been omitted, reducing the compliance burden on deductors and collectors.

4. Withdrawal of TCS on sale of goods: The deletion of section 206C(1H) was a step in the right direction, as the section was needlessly causing duplication and increasing complexity with hardly any incremental gain to the Government.

Impact:

These amendments will ease the compliance burden on taxpayers and monitoring of tax compliance by tax administrators, and reduce the instances of excess tax deduction, thereby improving cash flow for businesses and individuals. Such rationalisation will also encourage better compliance and reduce disputes, leading to more efficient tax collection.

3. Encouraging voluntary compliance

Amendments:

1. Extension of time limit to file updated ITRs: The time limit for filing updated returns has been extended from 24 months to 48 months, from the end of the relevant AY. This will encourage taxpayers to voluntarily disclose and rectify their ITRs.

2. Presumptive taxation for NRIs: A new presumptive taxation regime for non-residents (NRIs), providing services to electronic manufacturing facilities, has been introduced to ensure a simplified tax process and encourage compliance. The provision has been introduced to help position India as the global hub for Electronic System Design and Manufacturing and to bring in certainty with respect to the tax regime for this industry.

3. Simplified regime for fund managers in IFSC: Based on representations received by fund managers based in the International Financial Services Centre (IFSC) managing funds situated in other jurisdictions, the Bill proposes to simplify the regime, making it easier for them to comply with tax regulations.

Impact:

By extending the time limit for updated ITRs, the government encourages taxpayers to voluntarily disclose their income and pay taxes, which holds promise of better compliance and increased tax collection. Moreover, the simplified regime for fund managers will attract more investments to the IFSC, boosting economic activity and tax revenues. In this inclusive budget, the introduction of presumptive tax for NRIs providing services to electronic manufacturing facilities will result in growth and expansion of the electronic industry.

4. Reducing compliance burden

Amendments:

1. Simplification for charitable trusts: The period of registration for smaller trusts or institutions with total income not exceeding INR 5 crores has been increased from five years to ten years, reducing the rigour of compliance.

2. Rationalisation of specified violations: Minor defaults in application completeness will not lead to cancellation of registration, easing the compliance burden on trusts.

3. Rationalisation of penalty provisions: Penalties under various sections will now be imposed by the Assessing Officer instead of the Joint Commissioner, streamlining the process. Moreover, under section 276BB prosecution will be exempted if the TCS is paid before the time prescribed for filing the quarterly statement.

Impact:

Reducing compliance burden will make it easier for taxpayers to adhere to tax laws, thereby improving compliance rates. Simplified processes and reduced frequency of compliance will also free up resources and send out a positive note to both taxpayers and the tax administration, resulting in a more efficient tax collection system.

5. Ease-of-doing business

Amendments:

1. Faceless schemes: The end date to notify faceless schemes under various sections has been removed, allowing the Government to implement these schemes as needed.

2. Customs Act amendments: New sections and explanations are introduced to streamline processes, such as voluntary revision of entry post-clearance and defining time limits to finalise provisional assessments. 

Impact:

These amendments will make it easier for businesses to operate by reducing bureaucratic hurdles and compliance costs. Improved ease-of-doing business will attract more investments, trade leading to economic growth and higher tax revenue generation.

6. Employment and investment

Amendments:

1. Incentives for IFSC: The Bill extends various tax concessions for units located in the IFSC, including exemptions on capital gains and dividends for ship-leasing units.

2. Extension of start-up benefits: The tax benefits for eligible start-ups have been extended to those incorporated before 1 April 2030.

3. Boost to shipping industry: A tonnage tax scheme is introduced for Indian shipping companies satisfying specific conditions. To promote inland water transportation and attract investments in the shipping sector, it is proposed to extend the benefits of the tonnage tax scheme to inland vessels registered under the Inland Vessels Act, 2021 with effect from AY 2026–27.

Impact:

These incentives will attract more businesses and investments to the IFSC, creating job opportunities and boosting economic activity. Extending start-up benefits will encourage entrepreneurship, leading to innovation, job creation and increased tax revenues in the long-term. Moreover, the extension of tonnage tax scheme to inland ships will provide fillip to inland shipping, the development of which is important for improving infrastructure.

Conclusion

The GST collection in FY reached a total of INR 20.18 lakh crores[1], while income-tax collections for corporates touched INR 510,484 crores in FY 2024–25 (provisional) and personal tax was INR 700,146 crores in FY 2024–25 (provisional)[2]. The amendments introduced in the Bill are being viewed as reformative, aimed at the simplification of the tax system, reduction in compliance burden and promotion of economic growth. Moreover, the new Income-tax Act, will hopefully give impetus to the Government’s vision of Viksit Bharat.