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Published on 5 April 2025

Union Budget 2025: Key Changes in Direct Taxation Explained

Overview of Key Changes in Union Budget 2025 Direct Taxation

The Union Budget 2025 presents significant changes in direct taxation aimed at benefiting taxpayers and simplifying the overall tax structure. The key focus areas include reducing the tax burden, enhancing compliance flexibility, and providing relief to salaried individuals, senior citizens, and small taxpayers.

Withdrawal of Section 206AB

Effective April 1, 2025, Section 206AB will be withdrawn. Previously, this section mandated a higher Tax Deducted at Source (TDS) rate for individuals who did not file income tax returns. The removal of this requirement is expected to simplify compliance for both taxpayers and businesses.

Revised Income Tax Slabs

A major relief introduced in the budget is the updated income tax slab structure under the new tax regime. The revised tax slabs are as follows:

  • Annual Income (₹)
    • 0 – 4 lakh: Nil
    • 4 lakh – 8 lakh: 5%
    • 8 lakh – 12 lakh: 10%
    • 12 lakh – 16 lakh: 15%
    • 16 lakh – 20 lakh: 20%
    • 20 lakh – 24 lakh: 25%
    • Above 24 lakh: 30%

Key Benefit: Individuals earning up to ₹12 lakh annually will not incur any income tax under this regime due to applicable standard deductions and exemptions.

Higher Standard Deduction for Salaried Taxpayers

To further alleviate the burden on salaried individuals, the standard deduction has been increased to ₹75,000. This enhancement reduces taxable income which, in turn, increases the disposable income for millions of employees nationwide.

Adjustments in TDS & TCS Benefits

The budget also implements positive changes to TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions:

  • TDS on Rent: The annual exemption limit has increased from ₹2.40 lakh to ₹6 lakh, providing benefits to small landlords and property owners.
  • TDS on Interest for Senior Citizens: The threshold has doubled from ₹50,000 to ₹1 lakh, offering additional financial relief to senior citizens who depend on interest income.

Extended Time for Filing Updated Income Tax Returns

A significant benefit for taxpayers is the extension of the time limit for filing updated Income Tax Returns (ITR-U) from 2 years to 4 years. This extension provides individuals and businesses with additional time to correct any mistakes or omissions in their previously submitted returns, mitigating unnecessary penalties and legal complications.

Introduction of a New Income Tax Bill

The government plans to introduce a new Income Tax Bill aimed at simplifying the tax framework and reducing compliance burdens. This proposed bill seeks to modernize tax laws, making them more transparent, business-friendly, and easier for taxpayers to navigate.

Conclusion

The reforms introduced in the Union Budget 2025 present numerous advantages for taxpayers across various segments, particularly for salaried individuals, senior citizens, and small taxpayers. These changes not only aim to reduce tax burdens but also enhance overall compliance, making the tax landscape more favorable for all stakeholders.

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