5 Takeaways for Tax Payers from the Budget 2025

Union Budget 2025 has brought several changes, with a particular focus on simplifying tax provisions and addressing issues like Tax Deducted at Source (TDS), Tax Collected at Source (TCS), and dispute redressal mechanisms. The government’s aim is to create a smoother, more taxpayer-friendly system that supports growth while maintaining fiscal discipline. Here are the 5 key takeaways for individual taxpayers.

1. Rationalised TDS and TCS Provisions

One of the major changes taxpayers will notice in Budget 2025 is the rationalization of TDS and TCS provisions. These provisions are designed to simplify tax collection and minimize disputes between taxpayers and authorities.

TDS Enhancements:

• Interest Income for Senior Citizens: The TDS exemption limit for interest income has been doubled for senior citizens from ₹50,000 to ₹1 lakh. This move will reduce tax deductions on their interest earnings, making it easier for them to retain more income.
• Interest Income for Others: For others, the TDS exemption has been increased from ₹40,000 to ₹50,000 (when the payer is a bank, cooperative society, or post office), and ₹10,000 for other cases. This will reduce frequent deductions for smaller amounts.
• Rent Payments: The TDS threshold for rent has been significantly revised. Now, non-individual tenants must deduct TDS on rent payments exceeding ₹50,000 per month, which was previously applicable for amounts above ₹2.4 lakh annually.

Furthermore, other taxpayers will also benefit from higher TDS limits on interest and dividends. The threshold for TDS on dividend income has been raised from ₹5,000 to ₹10,000, which will reduce the instances of small tax deductions that previously caused unnecessary paperwork.

TCS Revisions:

• Liberalized Remittance Scheme (LRS): The TCS threshold for foreign remittances under the LRS has been increased from ₹7 lakh to ₹10 lakh. This will ease the tax burden on taxpayers making remittances for foreign travel or investments.
• Education Remittances: No TCS will be levied on education-related remittances if the funds come from loans taken from recognized financial institutions. This will benefit students and families who rely on loans for education abroad.

Reduced TDS/TCS Rates

Increase in TDS/TCS Thresholds

No Higher TDS for PAN Holders

The higher TDS rates, previously applied in cases where the taxpayer did not provide a PAN, will now only apply to non-PAN cases. This measure will simplify compliance for businesses and individuals who have a valid PAN.

2. Enhanced Tax Rebate and Revised Tax Slabs

The current budget brings a significant proposal for a new, simplified income-tax bill, which is set to reduce complexity by nearly halving the existing law’s chapters and words. This new framework aims to provide greater tax certainty, reduce litigation, and make the tax system more straightforward for both taxpayers and the tax administration.

In addition to the simplified bill, individual taxpayers will benefit from an enhanced tax rebate under Section 87A. The rebate will be increased from ₹25,000 to ₹60,000, ensuring that individuals with income up to ₹12 lakh are exempt from paying income tax. This measure is expected to provide substantial relief, particularly to the middle class, and is likely to boost disposable income, which can drive consumption and savings within the economy.

Alongside this, the revised tax slabs under the new tax regime are designed to offer more relief across various income brackets and simplify tax calculations. The new tax slabs are as follows:

• Up to ₹4 lakh: NIL
• ₹4 lakh to ₹8 lakh: 5%
• ₹8 lakh to ₹12 lakh: 10%
• ₹12 lakh to ₹16 lakh: 15%
• ₹16 lakh to ₹20 lakh: 20%
• ₹20 lakh to ₹24 lakh: 25%
• Above ₹24 lakh: 30%

These revisions, along with the enhanced tax rebate, are expected to provide substantial savings, particularly for the middle-income group, offering them greater financial flexibility and encouraging economic growth through increased consumption and savings

3. Simplified Self-Occupied Property Rules

The Budget 2025 has simplified the rules concerning self-occupied properties. Taxpayers can now claim two properties as self-occupied, even if they are not physically living in them, without needing to meet specific conditions. This change will benefit taxpayers with multiple homes who previously had to navigate complex regulations to claim self-occupation status for both properties.

This simplification removes the confusion that often arose from trying to qualify multiple properties as self-occupied, making it easier for homeowners to file their taxes accurately.

4. Dispute Redressal Mechanism

In an effort to reduce litigation and provide greater clarity, the government has proposed a new income-tax bill that is simpler and more direct, aiming for greater tax certainty. The new bill will contain fewer chapters and words, making it more accessible and easier to understand for both taxpayers and tax authorities.

This bill is expected to simplify tax compliance and encourage taxpayers to approach the tax authorities for clarifications without the fear of complicated legal language. It is part of the government’s broader goal to resolve disputes quickly and reduce litigation.

Alongside this, the time limit to file updated returns has been extended to 48 months (up from 24 months), allowing taxpayers more time to rectify errors in their filings. However, updated returns filed between 24 to 48 months will incur an additional tax penalty of 60-70%, which emphasizes the need for timely and accurate tax filings.

5. Taxation Reforms: NPS Vatsalya Scheme and ULIP Changes

• NPS Vatsalya Scheme Deduction: Contributions to the NPS Vatsalya accounts for minors are eligible for a deduction of up to ₹50,000 under Section 80CCD(1B). These funds become taxable in the hands of the parent/guardian upon withdrawal, except in case of the minor’s death. Partial withdrawals up to 25% of the contributions are exempt from tax.
• ULIP Taxation Rationalization: ULIPs not exempt under Section 10(10D) will now be taxed as capital gains, like equity funds. ULIPs purchased before 2005 with premiums exceeding 10% of the sum assured will be taxed as capital gains, replacing the previous income tax treatment. Exempt ULIPs will remain unaffected.

Conclusion

The Union Budget 2025 aims to simplify tax provisions, focusing on TDS and TCS. By raising TDS thresholds, enhancing tax rebates, and revising tax slabs, it offers relief, especially for middle-class taxpayers. The introduction of clearer rules for self-occupied properties and a new tax bill promotes transparency, reduces litigation, and encourages better compliance, benefiting taxpayers and the economy.