As the new financial year 2025-26 approaches, several significant income tax rule changes introduced through the Finance Bill 2025 will come into effect from April 1, 2025. These amendments are designed to simplify the tax structure and provide relief to taxpayers, particularly salaried employees. Here's a comprehensive overview of the key changes:
1. Enhanced Tax Rebate Under Section 87A
The tax rebate under Section 87A of the Income-tax Act, 1961, has been increased from ₹25,000 to ₹60,000 in the new tax regime. This enhanced rebate applies to taxable income up to ₹12 lakh, effectively making such income tax-free. For salaried employees, considering the standard deduction (discussed below), this limit extends to ₹12.75 lakh. It's important to note that the tax rebate under the old tax regime remains unchanged.
2. Revised Tax Slabs and Rates
The new tax regime introduces revised tax slabs and rates effective April 1, 2025:
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Income up to ₹4,00,000: Nil
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₹4,00,001 to ₹8,00,000: 5%
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₹8,00,001 to ₹12,00,000: 10%
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₹12,00,001 to ₹16,00,000: 15%
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₹16,00,001 to ₹20,00,000: 20%
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₹20,00,001 to ₹24,00,000: 25%
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Above ₹24,00,000: 30%
The basic exemption limit has been raised from ₹3 lakh to ₹4 lakh, and the highest 30% tax rate now applies to incomes above ₹24 lakh. There are no changes to the slabs and rates under the old tax regime.
3. Increased Standard Deduction
The standard deduction for salaried employees has been increased from ₹50,000 to ₹75,000 under the new tax regime. This enhancement effectively raises the tax-free income threshold for salaried individuals to ₹12.75 lakh, considering the ₹60,000 rebate under Section 87A.
4. New TDS Thresholds
The minimum amounts above which Tax Deducted at Source (TDS) is applicable have been revised for various transactions. Notably, the TDS threshold on bank deposit interest has increased from ₹40,000 to ₹50,000. This means that interest income up to ₹50,000 will not attract TDS.
5. Redefined Perquisites
From April 1, 2025, certain amenities and benefits provided by employers to employees will be exempt from being treated as perquisites. Additionally, expenditures incurred by employers for an employee's medical treatment abroad, including travel expenses for the employee or their family members, will not be considered taxable perquisites.
6. Taxation of ULIPs
Unit Linked Insurance Plans (ULIPs) with annual premiums exceeding ₹2.5 lakh will now have their redemption proceeds classified as capital gains. These gains will be taxed under Section 112A of the Income Tax Act, aligning the taxation of high-premium ULIPs with equity-oriented investments.
7. Additional Deduction for NPS Vatsalya
Salaried employees can now contribute to the NPS Vatsalya account for their children and claim an additional deduction of ₹50,000 under the old tax regime. This initiative encourages savings for children's future while providing tax benefits.
8. Simplified Annual Value for Self-Occupied Property
Taxpayers can now claim a nil annual value on up to two properties, regardless of whether they are self-occupied. This change simplifies the tax treatment of multiple properties and provides relief to homeowners.
Staying informed about these changes is crucial for effective tax planning in the new financial year.
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