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The Union Budget 2025, presented by the Finance Minister, has introduced significant changes in the income tax structure and TDS/TCS (Tax Deducted at Source / Tax Collected at Source) rules. These changes aim to reduce the tax burden on individuals, particularly middle-class taxpayers and senior citizens, while also simplifying tax compliance. The budget focuses on increasing disposable income, encouraging savings, and making tax filing more convenient. Below are the major updates announced in the budget.
No Tax on Income Up to ₹12 Lakh Under the New Tax Regime
A major relief has been provided to taxpayers under the new tax regime, where individuals earning up to ₹12 lakh annually will not have to pay any income tax. Earlier, this exemption limit was ₹7 lakh. This move is expected to benefit millions of salaried and self-employed individuals, increasing their disposable income and improving their financial security.
This change aims to encourage more taxpayers to shift to the new tax regime, which offers a simplified structure without various deductions and exemptions. By raising the basic exemption limit, the government seeks to make tax filing easier and promote greater compliance.
Revised Tax Slabs for Income Above ₹12 Lakh
The government has revised the income tax slabs for those earning more than ₹12 lakh per year. The new slabs are designed to ensure fair taxation and provide relief to middle- and high-income earners.
New Tax Slabs (Under the New Tax Regime 2025-26):
| Annual Income (₹) | Tax Rate |
|---|---|
| 0 – 4 lakh | 0% (No tax) |
| 4 – 8 lakh | 5% |
| 8 – 12 lakh | 10% |
| 12 – 16 lakh | 15% |
| 16 – 20 lakh | 20% |
| 20 – 24 lakh | 25% |
| Above 24 lakh | 30% |
The new structure ensures a progressive taxation system, where individuals with higher income contribute more towards taxes. However, by lowering tax rates for middle-income groups, the government aims to increase purchasing power and encourage spending in the economy.
Old Tax Regime Remains Unchanged
While the new tax regime has been made more attractive, the government has kept the old tax regime unchanged. This allows taxpayers to choose between the two systems based on their financial preferences.
The old tax regime continues to offer deductions under sections like:
- Section 80C – Investments in EPF, PPF, LIC, NSC, etc.
- Section 80D – Medical insurance premiums
- HRA (House Rent Allowance) – For salaried individuals
- Standard Deduction – Available to all salaried and pensioned individuals
For those who claim multiple deductions, the old regime may still be a better choice. However, for individuals who do not have many investments or deductions, the new tax regime with higher exemption limits can be more beneficial.
Time Limit for Updated Tax Returns Extended to Four Years
To make tax compliance more flexible, the government has extended the time limit for filing updated tax returns from two years to four years.
This means that if a taxpayer makes a mistake in filing their return or fails to disclose certain income, they now have four years to correct their tax filings without facing severe penalties.
This extension provides a greater opportunity for individuals to rectify errors and ensure their tax filings are accurate. It also promotes transparency and reduces the risk of unintended tax evasion.
No TDS on Interest Income for Senior Citizens Up to ₹1 Lakh
To provide financial relief to senior citizens, the government has doubled the TDS exemption limit on interest income from ₹50,000 to ₹1 lakh.
Previously, banks deducted TDS on interest income above ₹50,000 earned from savings accounts, fixed deposits (FDs), and other interest-bearing investments. Now, senior citizens earning up to ₹1 lakh in interest annually will not have to worry about TDS deductions.
This is a significant step in supporting elderly citizens who depend on interest income for their day-to-day expenses. It will ensure higher take-home earnings for retired individuals and reduce the need for frequent tax refund claims.
No TDS on Rent Payments Up to ₹6 Lakh Per Year
The government has raised the TDS exemption limit on rental payments from ₹2.4 lakh per year to ₹6 lakh per year.
Earlier, if a tenant paid more than ₹2.4 lakh annually as rent, they had to deduct 10% TDS and deposit it with the government. Now, this limit has been raised to ₹6 lakh, which means fewer people will have to comply with TDS deductions on rent.
This change benefits both landlords and tenants:
- Tenants: No need to deduct TDS and go through complex paperwork for lower rental amounts.
- Landlords: Will receive the full rent amount without deductions, ensuring smoother transactions.
This change is expected to benefit small landlords and middle-class renters, making rental housing more accessible.
NSS Withdrawals After August 29, 2024, Are Tax-Free
The government has introduced a major tax relief for investors in the National Savings Scheme (NSS).
From August 29, 2024, onwards, any withdrawals made from NSS will be completely tax-free.
Earlier, withdrawals were taxable, reducing the effective returns from these savings schemes. By making withdrawals tax-free, the government aims to:
- Encourage long-term savings among individuals.
- Make NSS a more attractive investment option.
- Provide additional financial security, especially for retirees.
This move is expected to boost investments in NSS, helping individuals secure their future with tax-free returns.
Conclusion
The Budget 2025 brings major tax relief with a higher ₹12 lakh exemption limit under the new tax regime, revised slabs for fairer taxation, and the flexibility to choose between the old and new regimes. The updated tax return filing window is now extended to four years, simplifying compliance.
Key TDS/TCS changes include ₹1 lakh TDS exemption on interest for senior citizens, a higher ₹6 lakh TDS-free limit on rent payments, and tax-free NSS withdrawals after August 29, 2024. These reforms aim to reduce tax burdens, boost disposable income, and encourage savings, making the tax system more taxpayer-friendly.
