Union Budget 2025 – A synopsis about the tax and compliance reforms

By: Priyanka Jain - 6th February, 2025

a. New regime

• Individual income tax:

  Tax Rates: The budget has proposed new tax rates and slabs under the new tax regime, which are:

  Income	Rate of Tax
  Upto Rs. 4 Lakhs	Nil
  Rs. 4,00,001 to Rs. 8,00,000	5%
  Rs. 8,00,001 to Rs. 12,00,000	10%
  Rs. 12,00,001 to Rs. 16,00,000	15%
  Rs. 16,00,001 to Rs. 20,00,000	20%
  Rs. 20,00,001 to Rs. 24,00,000	25%
  Above Rs. 24 Lakhs	30%

  No income tax will be payable upto Rs. 12 Lakhs (excluding income taxable at special rates and capital gain taxes). This means that an assessee earning income above the basic exemption limit of Rs.4 Lakhs but below Rs. 12 Lakhs (apart from special income and capital gains) will not be paying any income taxes, by claiming a rebate.

  Note 1) The new tax regime will continue to be the default tax regime. However, the assessee can still avail benefits under old tax regime on opt-out basis as per the Law. 

  Note 2) Please note it is compulsory to file your Income tax return if your income is more than Rs. 4 Lakhs i.e., the basic exemption limit.  Rs 12 Lakh is a rebate and not an exemption limit. For claiming the rebate, you need to compulsorily file a return if your income exceeds the basic exemption limit.

  Old regime

  Individual income tax:

  There are no changes to the tax slab rates under the old tax regime and it continues to remain same as last year.

  It is proposed that contributions made to the NPS Vatsalya accounts would be eligible for deduction under Section 80CCD(1B) up to a maximum of INR 50,000 under the old tax regime. This deduction is within the existing limit of INR 50,000 available for Section 80CCD(1B).

b. Hon. FM has now proposed to increase the time limit to file Updated Return for any assessment year from 2 years to 4 years.

c. The budget proposes to rationalise TDS and TCS by reducing the number of rates and the thresholds at which TDS is deducted.

1. The tax deduction limit for interest earned by senior citizens (other than interest on securities) is increased from Rs. 50,000 to Rs. 1,00,000.
2. The threshold limit for deducting TDS on rent for use of plant and machinery or the use of land or building including factory building is being increased from Rs. 2,40,000 to Rs. 6,00,000.
3. TCS threshold limit on remittances made under the LRS scheme of RBI is increased from Rs. 7,00,000 to Rs. 10,00,000 and TCS on remittances made for educational purposes is reduced to Nil provided such remittance is financed by loan from specified financial institutions.
4. Further, the Hon. FM in order to reduce the compliance difficulties relating to sale of goods on which both TDS and TCS were applied proposed to omit TCS and apply higher TDS deductions only on non-PAN cases.
5. It is proposed to omit section 206AB and section 206CCA of the Act. i.e., removal of higher TDS/TCS for non-filers of return of income.

d. Other provisions proposed in the budget speech included:

1. The compliance burden for small charitable trusts is being reduced by giving them 10 years’ registration instead of 5 years. This is for trusts having income (before exemption) of less than Rs.5 crore in each if the two years preceding the year of making application for renewal. In such cases, registration will be granted for 10 years. Certain conditions apply to fulfil this.
2. Taxpayers could claim annual value of two self-occupied homes as nil only on certain conditions earlier. This will now be allowed for two self-occupied properties without any conditions.
3. Senior citizens with very old National Savings Scheme accounts that are not attracting interest anymore, will be allowed to withdraw their savings without any tax if withdrawn on or after 29/08/2024.
4. To promote investment and employment, it is proposed to provide a presumptive taxation scheme to non-residents engaged in the business of providing services or technology to a resident company, which is establishing or operating electronics manufacturing facility.
5. The tonnage taxation scheme earlier available to sea-going vessels is now extended to inland vessels to promote inland water transport in the country.
6. With a view to reduce litigation and provide certainty in international taxation, the scope of safe harbour rules is being expanded.
7. The taxation of ULIPs has been rationalised to provide that all ULIPs which are not exempt under section 10(10D) will be taxable as capital gains similar to equity-oriented funds. Currently only those ULIPs which are purchased after 01 Feb 2021 with premium/aggregate premiums more than INR 2.5 lakhs p.a. are taxable as capital gains. Post the amendment, a ULIP purchased say in 2005 for which the premium payable in any year exceeds 10% of the actual sum assured, will also be taxable as capital gain instead of being taxed as income from other sources. The ULIPs which were exempt previously will continue to remain so.

e. Hon. FM also announced a new Income Tax bill which will be introduced in a week. The bill expected to be based on Direct Tax Code (DTC) aims to simplify and clarify the existing tax framework.

f. A modified UDAN scheme to be launched to enhance regional connectivity to 120 new destinations and carry 4 crore passengers in the next 10 years.

g. MSMEs contribute 45% of exports, and the government plans to provide enhanced investment and turnover limits for their classification. Government, to enhance credit guarantee cover for MSMEs, improving credit access and boosting growth in this critical sector.

h. Customised credit cards for micro-enterprises with a Rs. 5 lakh limit introduced to support small businesses.

i. Government to provide mudra loans to homestays, improving ease of travel and connectivity to tourist destinations.

j. 35 additional goods for EV battery, 28 additional goods for mobile phone battery production to come in list of exempted capital goods.

k. Hon. FM proposed to completely exempt 36 life-saving medicines from customs duty. In addition to the customs duty exemptions, Hon. FM revealed plans to establish cancer care centres in every district of India. This initiative aims to bring quality cancer treatment closer to patients, eliminating the need for long, costly journeys to major cities.

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