Key Income Tax Changes Effective from April 1, 2025: A Complete Guide to New Rules, Slabs & Deductions

Key Income Tax Changes Effective from April 1, 2025: A Complete Guide to New Rules, Slabs & Deductions

The Finance Act 2024 has introduced significant amendments to India’s income tax laws, effective from April 1, 2025. These changes impact individuals, startups, senior citizens, and businesses, aiming to simplify tax compliance, increase exemptions, and enhance voluntary tax filing.

This article provides a detailed breakdown of all the key income tax changes, including modifications to TDS and TCS thresholds, revised tax slabs, rebates, and procedural updates. Read on to understand how these changes affect you.

1. Extended Tax Benefits for Startups (Section 80-IAC)

What’s New?

The tax holiday for eligible startups has been extended to March 31, 2030. This amendment allows startups to claim a 100% tax exemption for any three consecutive years out of the first ten years.

Eligibility Criteria:

• The startup must be recognized by DPIIT (Department for Promotion of Industry and Internal Trade).
• The annual turnover should not exceed ₹100 crore in any financial year.
• The entity must be engaged in innovation, development, or improvement of products, processes, or services.

Additional Benefits:

• Startups can also avail capital gains exemption under Section 54EE.
• Carry forward of losses allowed for 10 years, even in cases of shareholding changes.
• Tax incentives on investments made by Category-I AIFs (Alternate Investment Funds).

Impact:

• Encourages entrepreneurship and innovation.
• Provides significant tax relief to new businesses.
• Boosts startup ecosystem by ensuring financial sustainability.

2. Revised TDS (Tax Deducted at Source) Rules

The government has modified several TDS provisions to ease compliance and reduce the tax burden. These changes are aimed at benefiting salaried individuals, businesses, and professionals while reducing unnecessary tax deductions.

Key Changes:The government has modified several TDS provisions to ease compliance and reduce the tax burden.

Income Type	Old TDS Threshold	New TDS Threshold (From April 1, 2025)
Rent (Section 194-I)	₹2.4 lakh/year	₹50,000 per month
Senior Citizens’ Interest Income (Section 194A)	₹50,000/year	₹1 lakh/year
Other Interest Income (Section 194A)	₹40,000/year	₹50,000/year
Insurance Commission (Section 194D)	₹15,000/year	₹20,000/year
Payments to Partners (New Section 194T)	Not Applicable	10% TDS if payments exceed ₹20,000
Dividend Income (Section 194)	₹5,000/year	₹10,000/year
Online Gaming Winnings (Section 194BA)	TDS on each transaction	TDS applicable only if annual winnings exceed ₹10,000
Property Sale (Section 194-IA)	₹50 lakh	₹75 lakh

Detailed Insights:

• TDS on Rent (Section 194-I): Increased threshold will reduce the burden for tenants and landlords in high-rent cities.
• Interest Income (Section 194A): Senior citizens get more relief as banks will deduct TDS only if interest income crosses ₹1 lakh annually.
• Online Gaming Winnings: Now, TDS will be deducted only if total winnings exceed ₹10,000 per financial year, instead of on every single transaction.
• Property Transactions (Section 194-IA): Buyers will deduct TDS at 1% only for properties worth more than ₹75 lakh, reducing paperwork for smaller transactions.

Impact:

• Higher exemption limits reduce the compliance burden for small taxpayers.
• Business owners and professionals benefit from relaxed TDS deductions.
• Promotes fair taxation while ensuring compliance in high-value transactions.

The government has modified several TDS provisions to ease compliance and reduce the tax burden.

3. Rationalization of TCS (Tax Collected at Source) Rules (Section 206C(1H))

What’s Changed?

• TCS on the sale of goods no longer applies if the buyer deducts TDS under Section 194Q.
• This eliminates duplicate tax deductions and ensures a one-time deduction mechanism.
• TCS on foreign remittances under the Liberalized Remittance Scheme (LRS) has been revised:
• For non-educational and non-medical remittances: Reduced from 20% to 15% for transactions exceeding ₹7 lakh per financial year.
• For educational and medical expenses: Retains a lower 5% TCS rate beyond the ₹7 lakh threshold.
• TCS on overseas tour packages reduced from 20% to 15%, providing relief to international travelers.

Impact:

• Simplifies compliance for businesses involved in the sale of goods by avoiding dual tax collection.
• Reduces the tax burden on individuals making foreign remittances and travel bookings.
• Enhances efficiency in tax collection while reducing unnecessary financial strain on taxpayers.

4. Increased Tax Rebate under Section 87A

New Rebate Limit:

• The rebate under Section 87A has been increased from ₹7 lakh to ₹12 lakh.
• The standard deduction for salaried individuals has been raised from ₹50,000 to ₹75,000.
• Effectively, individuals earning up to ₹12.75 lakh will pay zero tax under the new tax regime.
• This rebate is only available under the new tax regime and does not apply to taxpayers opting for the old regime.

Additional Benefits:

• Middle-class taxpayers in the new tax regime will enjoy a significant reduction in tax liability.
• Combined with the revised income tax slabs, this change makes taxation more progressive.
• Encourages taxpayers to shift to the new tax regime, which has fewer deductions but lower tax rates.

Illustrative Example:

Annual Income (₹)	Tax Before Rebate (₹)	Tax After Applying 87A Rebate (₹)
10,00,000	37,500	0
12,00,000	60,000	0
12,75,000	75,000	0
13,00,000	80,000	5,000

Impact:

• More disposable income for middle-class taxpayers.
• Promotes the new tax regime by making it more attractive.
• Encourages compliance by providing tax relief for lower-income individuals.

New Rebate Limit:

• The rebate under Section 87A has been increased from ₹7 lakh to ₹12 lakh.
• The standard deduction for salaried individuals has been raised from ₹50,000 to ₹75,000.
• Effectively, individuals earning up to ₹12.75 lakh will pay zero tax under the new tax regime.

5. Extended Filing Period for Updated Returns (ITR-U) – Section 139(8A)

What’s New?

Taxpayers can now file an updated return (ITR-U) up to 4 years from the end of the relevant assessment year, compared to the previous 2-year limit.

Eligibility & Conditions:

• ITR-U can be filed for additional income not previously reported.
• Cannot be used for reducing tax liability or claiming additional refunds.
• The taxpayer must pay an additional tax penalty as per prescribed rates:
• 25% of additional tax if filed within 2 years.
• 50% of additional tax if filed after 2 but within 4 years.

Process for Filing ITR-U:

1. Log in to the Income Tax e-filing portal.
2. Select the ITR-U option under the ‘File Income Tax Return’ section.
3. Choose the relevant assessment year and provide details of additional income.
4. Compute tax liability, including the applicable additional tax penalty.
5. Pay the outstanding tax amount and submit the updated return.

Impact:

• Encourages voluntary compliance by allowing corrections to previously filed returns.
• Helps taxpayers avoid scrutiny and penalties by rectifying omissions.
• Ensures better revenue collection for the government while giving flexibility to taxpayers.

6. Procedural and Trust Reforms

Key Updates:

• Block Assessment Completion (Section 158BE): The timeline for completing block assessments has been extended to 12 months from the end of the quarter in which the search or requisition is conducted. This change provides more time for a thorough review of seized financial data.
• Charitable Trust Registration (Section 12AB): The validity period for registrations has been increased from 5 years to 10 years for trusts with income below ₹5 crore. This aims to reduce the administrative burden on charitable organizations.
• Specified Person for Trusts (Section 13(3)): The definition of "specified persons" has been narrowed to include only donors contributing over ₹1 lakh, excluding the donor’s relatives and associated entities. This modification ensures greater transparency in charitable funding.
• New Audit Requirement for Trusts and Institutions: Entities claiming tax exemptions under Sections 10(23C) and 12AB must now submit detailed audit reports annually, ensuring accountability and reducing misuse of tax-exempt status.
• Restrictions on Fund Diversion: Charitable organizations will face stricter scrutiny on fund utilization, preventing misuse of donations for non-charitable purposes.

Impact:

• Strengthens compliance for charitable trusts and tax-exempt institutions.
• Enhances transparency in donation usage and financial reporting.
• Reduces frequent re-registration requirements, benefiting long-term social welfare initiatives.
• Allows tax authorities sufficient time to analyze seized data for tax evasion cases.

7. New NPS Vatsalya Scheme – Section 80CCD

What’s New?

• The newly introduced NPS Vatsalya Scheme allows parents/guardians to claim tax deductions under Section 80CCD for contributions made to a minor child’s National Pension System (NPS) account.
• Previously, deductions were permitted only for contributions to an individual’s own NPS account.
• Contributions made under this scheme will be eligible for tax benefits up to ₹50,000 per year under Section 80CCD(1B), in addition to the existing NPS deduction limit.
• The minor's account will be managed as per NPS guidelines until they reach 18 years of age, after which they can take control of the account.

Eligibility & Conditions:

• Only biological/adoptive parents or legal guardians can claim this deduction.
• The minor must be an Indian citizen.
• The contributions should be made directly to an NPS account opened in the minor’s name.
• The account will have similar withdrawal and annuity provisions as a regular NPS account upon maturity.

Impact:

• Encourages long-term financial security and disciplined savings for children.
• Expands NPS participation and provides additional tax-saving opportunities.
• Helps in future financial planning for higher education and retirement of the child.

8. New Income Tax Slabs (2025-26) Under the New Regime

Revised Tax Slabs

The new income tax regime for FY 2025-26 will be the default system. Taxpayers can opt for the old regime if they wish, but must do so explicitly.

Annual Income Range (₹)	Tax Rate (%)
0 – 3,00,000	0%
3,00,001 – 6,00,000	5%
6,00,001 – 9,00,000	10%
9,00,001 – 12,00,000	15%
12,00,001 – 15,00,000	20%
Above 15,00,000	30%

Additional Features of the New Regime

• Basic exemption limit increased: Raised from ₹2.5 lakh to ₹3 lakh.
• Standard deduction: Salaried and pensioned taxpayers will continue to get a ₹75,000 standard deduction.
• No tax up to ₹12.75 lakh: After applying rebates and deductions, salaried individuals earning up to ₹12.75 lakh will pay no tax.
• Old tax regime still available: Taxpayers who prefer deductions (e.g., HRA, 80C, 80D) must opt-in annually.

Comparison with Old Tax Regime

Income Range (₹)	Old Regime Tax Rate (%)	New Regime Tax Rate (%)
0 – 2,50,000	0%	0%
2,50,001 – 5,00,000	5%	5%
5,00,001 – 10,00,000	20%	10-20%
Above 10,00,000	30%	30%

Impact of These Changes

• More taxpayers may switch to the new regime as it provides lower tax rates with fewer exemptions.
• Salaried individuals benefit from an effective tax-free income up to ₹12.75 lakh.
• The basic exemption limit increase provides relief to lower-income earners.
• Encourages simpler tax compliance with fewer deductions and exemptions.

Income Range (₹)	Tax Rate (%)
0 – 3,00,000	0%
3,00,001 – 6,00,000	5%
6,00,001 – 9,00,000	10%
9,00,001 – 12,00,000	15%
12,00,001 – 15,00,000	20%
Above 15,00,000	30%

Impact:

• The basic exemption limit increased from ₹2.5 lakh to ₹3 lakh.
• Retains the standard deduction benefit for salaried individuals.

9. Partner Remuneration Deduction – Section 40(b)

What’s Changed?

• The maximum deduction for partners in firms now depends on book profit:

Book Profit (₹)	Max Deduction Allowed
Up to ₹6,00,000	₹3,00,000 or 90% (whichever is higher)
Above ₹6,00,000	60% of book profit

Additional Conditions:

• The remuneration must be authorized by the partnership deed.
• It should be paid only to working partners actively engaged in the business.
• The firm must file income tax returns on time to claim deductions.

Tax Treatment for Partners:

• The remuneration received by partners is taxable as business income.
• It is subject to TDS under Section 192B.
• Partners can claim deductions for expenses incurred while earning this income.

Impact:

• Provides clarity on the remuneration structure for partnership firms.
• Helps firms plan their tax liabilities better and avoid disputes with tax authorities.
• Encourages compliance with proper documentation in partnership agreements.

10. Relaxation in Deemed Rent on House Properties

Key Amendment:

• Up to two house properties can now be claimed as self-occupied, without being subject to deemed rental taxation.
• Previously, only one property was allowed as self-occupied; additional properties were considered deemed let-out, attracting notional rental income tax.
• There are no conditions regarding the location or use of these properties, providing greater flexibility to taxpayers.
• This provision applies to both individual taxpayers and Hindu Undivided Families (HUFs).

Additional Benefits:

• Homeowners can save on tax liability without needing to artificially rent out properties.
• Promotes investment in the real estate sector by making multiple property ownership more tax-efficient.
• Reduces tax disputes regarding deemed rental income calculations.

Impact:

• Significant tax relief for individuals owning multiple properties.
• Encourages real estate investment by removing deemed rent constraints.
• Aligns tax laws with modern property ownership trends, providing greater financial flexibility to taxpayers.

Conclusion

The income tax changes effective from April 1, 2025, mark a significant shift in India’s taxation system. With higher tax-free limits, enhanced rebates, streamlined compliance rules, and support for startups, the government aims to create a tax-friendly and predictable economic environment.

Actionable Takeaways:

• Salaried individuals should review their tax slab preferences.
• Startups must register before March 31, 2030, to claim tax benefits.
• Senior citizens should leverage higher TDS exemptions on interest income.
• Business owners must align compliance with new TDS/TCS provisions.

Understanding these amendments and planning accordingly can help taxpayers maximize benefits while ensuring compliance with the latest tax regulations.

Frequently Asked Questions (FAQs)

1. What are the major income tax changes effective from April 1, 2025?

From April 1, 2025, key changes include revised tax slabs, increased TDS/TCS thresholds, an extended ITR-U filing period, and tax benefits for startups.

2. Is the new tax regime mandatory for all taxpayers?

No, the new tax regime will be the default option, but taxpayers can still opt for the old tax regime if they prefer.

3. What are the changes in the Section 87A rebate?

Under the new tax regime, the rebate under Section 87A has been increased to ₹12 lakh, and the standard deduction has been raised to ₹75,000.

4. Are startups still eligible for tax exemptions?

Yes, under Section 80-IAC, startups can now claim tax benefits until March 31, 2030.

5. How long can taxpayers file an updated return (ITR-U)?

Taxpayers can now file an updated return (ITR-U) up to 4 years after the relevant assessment year, compared to the previous 2-year limit.

6. What changes have been made to TDS exemptions for senior citizens?

The TDS exemption on interest income for senior citizens has been increased from ₹50,000 to ₹1 lakh per year.

7. Can deductions still be claimed under the new tax regime?

Most deductions are not available under the new tax regime, but the standard deduction of ₹75,000 is still applicable.

8. What is the NPS Vatsalya Scheme?

The NPS Vatsalya Scheme allows parents/guardians to claim tax deductions for contributions to their minor child’s NPS account, up to ₹50,000 per year.

9. Have TDS rules for property transactions changed?

Yes, the TDS threshold for property sales has been increased from ₹50 lakh to ₹75 lakh, reducing compliance burdens for smaller transactions.

10. Are there any changes in TCS on foreign remittances and travel?

Yes, TCS on foreign remittances above ₹7 lakh has been reduced to 15% (from 20%), and TCS on education/medical expenses remains at 5%.

Read More: Key Income Tax Changes Effective from April 1, 2025: A Complete Guide to New Rules, Slabs & Deductions