In the Union Budget 2025 presented today, the Hon’ble Finance Minister unveiled a series of significant tax reforms aimed at stimulating economic growth, simplifying tax structure etc. These measures are poised to have far-reaching implications for individuals, businesses and the broader economy. 

The most notable and applauded changes are in the individual income-tax regime with the special attention on lower and middle-income earners.  While one was expecting some changes in the individual income-tax rates but may have hoped less for the beneficial changes that have been announced.

The highlight of the budget is that the individuals having annual taxable income (other than income subject to special rate e.g., capital gains) upto ₹12 lakhs would have NIL tax under the New Personal Tax Regime (NPTR).  

Further, the income slabs and income-tax rates have been changed across the board under the NPTR, the comparison of which is provided in the below table:

As per a quick math, the individual earning taxable income of ₹25 lakhs and opting for the NPTR will have a saving of the annual tax outflow of ₹1,14,400.  

This would certainly help boost disposable incomes of the lower and middle-income earners, and related tax savings across for all the individual taxpayers.  What a welcome change!!!  This is likely to encourage more tax filers to opt for the NPTR, as compared to around 72% taxpayers who opted for the NPTR last financial year (FY). 

The Budget has also proposed rationalising TDS and TCS provisions to simplify tax deduction and collection compliances, by way of changing minimum threshold in certain provisions, removing overlapping tax rules requiring both TDS and TCS etc.  Refer to the table below for some of the key changes in the TDS provisions:

Furthermore, the TCS threshold for foreign remittances under RBI's Liberalised Remittance Scheme (LRS) is now proposed as under –

While it is time to cheer for the above changes, one should also be aware of certain related nuances. The benefit of having Nil tax for the annual taxable income upto ₹12,00,000 is available to the Resident taxpayers only.  It means that the Non-resident individuals opting for the NPTR would still have the income-tax liability once their total income exceeds ₹4 lakhs. There is no change in the surcharge which is applicable for the taxpayers earning annual income beyond ₹50 lakhs, and consequently the maximum marginal rate for such taxpayers will continue to be 34.32%, 35.88% and 39.00% (depending on the income level).  Furthermore, the Government still has not provided a clear roadmap of overall phasing out of the Old Personal Tax Regime yet, leaving a room of uncertainty for the taxpayers.  Also, the Government has not brought any change in the standard deduction for the salaried individuals and capital gains tax as much expected by the taxpayers.  As more taxpayers would adopt the NPTR, it could also possibly contribute to discouraging investments in saving schemes, availing home loans, charitable donations etc. having consequential adverse impact on the related payee organisations and investee entities in meeting their objectives, fund requirements etc.

Another announcement is allowing the taxpayer to file the Updated ITR until 60 months from the end of relevant FY, extending it from present timelines of 36 months.  The filing of Updated ITR has been introduced for the taxpayers who missed reporting certain income in their original ITR or revised ITR, provided that the taxpayer fulfils the specified conditions as well as pay the additional income-tax at 25% or 50% of tax and interest (depending on when the Updated ITR is filed). The Budget proposal now provides additional opportunity for filing Updated ITR for another 2 years. However, it certainly would be a costlier affair for the taxpayers as the additional income-tax payment requirement increases to 60% or 70%.

In continuation of the announcement made during the Budget speech in July 2024, the Hon’ble Finance Minister confirmed that the new income-tax bill is set to be introduced in the Parliament in the coming week.  The aim is to simplify the law for taxpayers and reducing tax administration.  While lot of hopes have been created for the taxpayers as well as tax consultants in terms of more structured and efficient tax system in the future, it is currently a wait and watch situation as one will have more visibility once the fine print will be available and it is thoroughly deliberated.

From the individual taxpayer’s standpoint, the Budget announcements has come with the pleasant surprise and raised more hope for the better governance and regulations, improved tax administrations, ease of tax compliances etc. in the coming years.

[Views are personal]