Income Tax Updates for FY 2025-26: 11 Essential Changes

New Income Tax Rules Starting April 1, 2025

April 1, 2025, ushers in the new financial year, accompanied by several income tax rule modifications. These changes include a more streamlined new income tax regime, increased basic exemption limit, and revised tax rates. Furthermore, updates to TDS and TCS rules come into effect. Familiarizing yourself with these new income tax rules is vital, as they impact tax deductions from various income sources, such as salary and interest earnings. They will also determine your tax liability for income earned in FY 2025-26.

1. New Income Tax Slabs and Rates Under the New Tax Regime

The updated new tax regime introduces new income tax slabs and rates. Income exceeding Rs 24 lakh will now be subject to a 30% tax rate, compared to Rs 15 lakh previously. Additionally, the basic exemption limit has been increased from Rs 3 lakh to Rs 4 lakh.

• 0-4,00,000: 0%

• 4,00,001-8,00,000: 5%

• 8,00,001-12,00,000: 10%

• 12,00,001-16,00,000: 15%

• 16,00,001-20,00,000: 20%

• 20,00,001-24,00,000: 25%

• 24,00,001 and above: 30%

2. No tax on income up to Rs 12 lakh – Rs 12.75 lakh for salaried individuals

With the new income tax regime changes, individuals with a taxable income up to Rs 12 lakh will now pay NO tax! This provision is exclusive to individuals who opt for the new tax regime in FY 2025-26. However, this does not exempt one from filing an income tax return (ITR). The zero tax benefit is available through a tax rebate under Section 87A of the Income Tax Act, 1961.

3. ULIP Taxation Structure Modifications

The Budget 2025 has introduced changes to the taxation structure of specific ULIPs. The revised regulations state that ULIP proceeds not eligible for exemption under Section 10 (10D) will be classified as capital assets and included within the equity-oriented funds category. Consequently, proceeds from ULIPs that do not qualify for Section 10 (10D) exemption will be subject to capital gains taxation.

4. TDS Rates and Thresholds Adjustments

The Budget 2025 has introduced modifications to TDS provisions, including adjustments to rates and raising thresholds for implementing these provisions.

• Section 194LBC TDS rate adjustment: A uniform 10% TDS rate will apply.

• Threshold adjustments: Higher thresholds will apply to various sections, enabling taxpayers to retain more disposable income.