Provisions under Budget 2025

Finance Minister Nirmala Sitharaman presented the budget on Saturday (February 1). She came up with the gift for middle class taxpayer whose income is upto Rs 12 lakh. Tax reforms introduced by the Finance Minister which will impact your income tax liability for the financial year (FY) 2025-26 are as follows:

1.    Applicablity: 

Change in Income Tax Rates is effective for the income earned for the Financial Year 2025-26 i.e. from April 1, 2025. Income earned in the FY 2024-25 will continue to be taxed at the existing rates of income tax.

2. Change in I-T Slab Rates– There is no change in slab rates of Income Tax under old tax regime. Income Tax rates under new tax regime has been changed which are as follows

Now the question that arises is that if the Income Tax upto Rs 12 lakh is NIL then why there is NIL tax rate upto Rs 4 lakh only?

Explanation: Suppose a person is earning Rs 12,00,000 then as per the slab rates his tax liability will be as follows:

There is a separate section i.e. Section 87-A which exempts all tax liability if one’s income is upto Rs 12,00,000 and due to this section entire Rs 60,000 will be waived and the income tax liability will become zero.

Therefore if one’s income is more than Rs 12,00,000 then the tax liability will be computed as per above mentioned slab rates and no benefit can be derived under Section 87-A. And one has to pay the tax from Rs 4,00,000 and not from Rs 12,00,000.

In previous budget, salaried class of taxpayer got a standard deduction of Rs 75,000 and due to this standard deduction if a person earns a salary of Rs 12,75,000, he will first get the standard deduction of Rs 75,000 and his effective taxable income is Rs 12,00,000. And after the latest budget presented on Feb 1, 2025, there will be no tax upto the income of Rs 12,00,000. Therefore salaried class need not to pay any tax if the income is upto Rs 12,75,000.

3. Increase in Threshold limit of TDS from Rs 50,000 to Rs 1,00,000 for senior citizen for income earned by way of interest on deposit (FD, RD etc):

Till now, if senior citizens earning interest from their investment in FD, RD, Post office and the amount of interest in a financial year exceeds Rs 50,000, TDS got deducted by the bank/post office @ 10% from the interest income. For claiming the refund of TDS, one has to file his/her income tax returns. Now the threshold limit from deduction of TDS has been increased from Rs 50,000 to Rs 1,00,000.

For non-senior citizens, the threshold limit has been increased from Rs 40,000 to Rs 50,000.

4. Increase in threshold limit of TDS from rents, dividend and Insurance commission:

5. Updated Income Tax returns can now be filed upto 4 years from the end of Assessment Year:

In the earlier budget, government had introduced the facility of filing ITR-U for those who missed filing their Income Tax returns upto 2 years from end of assessment year with payment of certain amount of penalty depending upon the delay. Now the government has extended the time limit from 2 years to 4 years to file the Income Tax returns with payment of applicable rate of penalty. Suppose one missed to file the ITR for the Assessement Year 2022-23 as per the present rule, he/she you can file the return till 31.03.2027 (earlier 31.03.2025) with applicable rate of penalty.