Changes to Income Tax Rules in 2025: Introduction of revised tax brackets and rates, with updates to ITR regulations
The Indian government has passed a new Income Tax Bill, replacing the Income Tax Act of 1961, effective from April 1, 2026. The new law aims to make the process digital, transparent, and simple, with several changes designed with the individual taxpayer in mind.
The new law introduces a unified tax year, replacing the previous concepts of "Previous Year" and "Assessment Year." This streamlining of compliance and reduction of complexities in tax filing is expected to benefit taxpayers significantly.
One of the most notable changes is the removal of the controversial clause that blocked refunds for late filers. This amendment allows genuine late filers (due to illness, technical issues, etc.) to claim refunds, benefiting many taxpayers who were previously denied.
The new tax slabs are more progressive, with rates adjusted as follows: - Income up to ₹4 lakh: Nil - ₹4–8 lakh: 5% - ₹8–12 lakh: 10% - ₹12–16 lakh: 15% - ₹16–20 lakh: 20% - ₹20–24 lakh: 25% - Above ₹24 lakh: 30%
This adjustment affects tax planning and potentially reduces tax liability for some middle-income groups.
Other changes include the removal of tax on vacant property based on "deemed rent" or notional rent, a 30% standard deduction on house property income, and the reinstatement of Section 80M deduction on inter-corporate dividends. Taxpayers with no tax liability can now obtain NIL-TDS certificates more easily, reducing unnecessary tax withholding and improving cash flow.
Non-employee pension recipients can now avail tax deduction benefits on commuted pension, expanding pension tax relief beyond salaried individuals. The time limit for filing updated return (ITR-U) has been extended to 48 months.
The threshold amount for TCS (tax collected at source) on remittances abroad (LRS) has been raised to Rs 10 lakh. People above 60 years of age can save tax up to Rs 1 lakh on interest received from banks/DPOCs. The new tax regime offers tax-free income up to Rs 12 lakh.
The passage of the new Income Tax Bill in Parliament marks a significant shift in taxation, with changes expected in ITR filing rules from the next year. Taxpayers are advised to compare the new tax regime with the old one, as the old regime may be beneficial in some cases.
It is crucial for taxpayers to understand these changes, plan, and take timely action to protect themselves from tax risks. They are encouraged to incorporate LRS, TDS/TCS, ITR-U, and senior citizen rules into their personal financial plan.
The Income Tax Department regularly issues circulars and notifications to inform taxpayers about necessary changes over time. The government has made several changes in taxation, including the removal of TCS on remittances for educational purposes and the extension of the deadline to file ITR for non-audit cases to September 15, 2025, due to upgrades in the system and ease of use.
The Finance Minister Nirmala Sitharaman announced several relief measures in personal tax in the budget for the financial year 2025-26. Delayed submission of individual TCS statements will not attract prosecution if the tax has been paid on time. The interest rate on advance tax shortfall remains 1% per month, despite a misconception suggesting a change to 3%.
Overall, these changes aim to simplify tax laws, reduce litigation, increase taxpayer convenience, and provide targeted relief to property owners, pensioners, and businesses.
- The new tax regime's introduction of the unified tax year and the removal of tax on vacant property could positively impact the market, making the process of property investment in personal-finance more straightforward.
- In the digital finance landscape, the decentralized finance (defi) sector might observe a surge in interest due to the implementation of the new Income Tax laws, offering tax-free income up to a certain limit and a simplified tax process for taxpayers.
- Despite the significant changes introduced in the new Income Tax Bill, it is essential for individuals to remain updated, especially regarding changes in the tax slabs, tax deductions, and Tax Collected at Source (TCS) thresholds to make informed decisions and effectively manage their personal-finance.
