Introduction to the Budget 2025 Tax Reforms
The beginning of the new financial year on April 1 brings significant changes for taxpayers, thanks to the announcements made by Finance Minister Nirmala Sitharaman in the Union Budget for FY25-26. The revamped tax regime, which simplifies the taxation process and provides greater savings, is set to become the preferred choice for the majority of taxpayers. This article will break down the key changes, focusing on the income tax slab rejig, new tax benefits, and other measures that will ease the burden for salaried individuals, senior citizens, students, and homeowners.
New tax regime starts on April 1, 2025, with significant changes to exemptions and slabs.
Taxpayers will see substantial savings, especially those opting for the new tax regime.
The reforms affect salaried individuals, senior citizens, students, and homeowners.
New Tax Slabs and Exemption Thresholds
The most significant change in the Budget 2025 is the revision of the tax slabs under the new minimal-exemptions tax regime. One of the key features is the increase in the basic exemption threshold from Rs 3 lakh to Rs 4 lakh. Along with this, the rebate limit has been increased from Rs 7 lakh to Rs 12 lakh, further benefiting taxpayers. Additionally, the tax slabs have been widened, ensuring that taxpayers see a reduction in their tax outgo.
For salaried individuals, those with an income of up to Rs 12.75 lakh will not pay any tax, thanks to the standard deduction of Rs 75,000 that is now part of the new tax regime. According to calculations by Deloitte India, a salaried individual earning Rs 12 lakh will save approximately Rs 83,200 in tax (inclusive of cess). For those earning Rs 16 lakh, the savings will amount to Rs 52,000. The savings continue to grow, with individuals earning Rs 1 crore saving Rs 1,25,840, and those earning Rs 2 crore saving Rs 1,31,560.
Basic exemption limit increased from Rs 3 lakh to Rs 4 lakh.
Standard deduction of Rs 75,000 ensures no tax for income up to Rs 12.75 lakh.
Significant tax savings for salaried individuals under the new regime.
Old Tax Regime vs. New Tax Regime: Which Is More Beneficial?
While the new tax regime offers substantial savings for many taxpayers, there are still situations where the old tax regime might be beneficial. For instance, individuals who claim large deductions, such as house rent allowance (HRA), may still find the old regime more advantageous. However, the threshold for deductions to make the old regime more beneficial has now been raised significantly.
According to Deloitte’s analysis, those earning more than Rs 24 lakh will need to claim at least Rs 8 lakh in deductions under the old regime to make it more advantageous than the new tax regime. Popular deductions like those under section 80C (up to Rs 1.5 lakh), section 80D (health insurance premiums), and section 24B (home loan interest) are now insufficient to offset the benefits offered by the new regime. Therefore, the new tax regime is likely to be the default choice for most taxpayers unless significant deductions are being claimed.
Old tax regime requires higher deductions to remain beneficial.
For those earning above Rs 24 lakh, claiming deductions of Rs 8 lakh or more is necessary to offset the new regime’s benefits.
New regime is set to be the preferred option for most taxpayers.
TDS Relaxations for Senior Citizens
Budget 2025 also brings good news for senior citizens, particularly those relying on fixed deposit (FD) interest and rental income. The threshold for the 10 percent TDS on FD interest for senior citizens has been raised from Rs 50,000 to Rs 1 lakh, offering them more relief. Additionally, the threshold for TDS on rental income has been increased from Rs 2.4 lakh to Rs 6 lakh per year. These measures are expected to improve cash flow for senior citizens and reduce their tax compliance burden.
Senior citizens are often dependent on interest income from FDs or rental income for their livelihood, and these changes will provide them with better liquidity and ease. This is a welcome change, as the previous thresholds were considered inadequate, particularly in areas with rising rental prices.
TDS threshold for senior citizens’ FD interest raised from Rs 50,000 to Rs 1 lakh.
TDS on rental income threshold increased from Rs 2.4 lakh to Rs 6 lakh.
Improved liquidity and reduced tax compliance burden for senior citizens.
TCS Relaxation for Students and Overseas Remittances
The Budget also addressed the concerns of students and their families who have to make overseas remittances for education purposes. The Tax Collected at Source (TCS) on remittances through the Liberalized Remittance Scheme (LRS) has been raised from Rs 7 lakh to Rs 10 lakh. Additionally, students who remit funds for education will no longer face the 0.5 percent TCS on amounts exceeding Rs 7 lakh. The exemption will be applicable only if the remittance is made from loans taken from financial institutions, providing significant relief for students and their parents.
TCS exemption on educational remittances over Rs 7 lakh reduced to nil for students.
Threshold for TCS on overseas remittances raised from Rs 7 lakh to Rs 10 lakh.
Relief for students and parents making education-related remittances.
Relief for Homeowners with Two Properties
Another important change in the Budget 2025 is the tax relief provided to homeowners who own two properties. Previously, only individuals who resided in one of the two properties, or were unable to occupy the property due to work reasons, could claim the annual value of the second property as nil. With the new changes, homeowners will no longer need to meet these conditions to treat the annual value of the second property as nil, providing tax relief and reducing complexity for those owning multiple properties.
Tax exemption for two properties is now easier to claim for homeowners.
Conditions removed for claiming the annual value of the second property as nil.
Relief for homeowners with multiple properties.
