Brief on budget
Each income has different source of earning and so the provisions for its taxability. Income-tax Act provides for five heads of incomes for computation of taxable income, viz., Salary, Income from House Property, Income from Business or Profession, Capital Gain and Residual Income. Provisions contained under each head of income for computation of taxable income have been discussed in this document.
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Some of the key changes introduced in the Union Budget 2025-26 related to income tax are as follows:
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S. no. |
Section |
Amendment |
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Personal Tax Rates |
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1. |
For the Assessment Year 2026-27, the tax rates and income slabs have been changed. The new tax rates shall be as follows: • Income up to Rs. 4,00,000 will be exempt from tax. • For income ranging from Rs. 4,00,001 to Rs. 8,00,000, a 5% tax rate will apply. • Income between Rs. 8,00,001 and Rs. 12,00,000 will be taxed at 10%. • Income from Rs. 12,00,001 to Rs. 16,00,000 will attract a 15% tax rate. • A 20% rate will apply to income between Rs. 16,00,001 and Rs. 20,00,000. • Income falling in the range of Rs. 20,00,001 to Rs. 24,00,000 will be taxed at 25%, • Income exceeding Rs. 24,00,000 will be taxed at 30%. |
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2. |
• The income threshold for claiming a tax rebate under Section 87A for resident individuals taxable under the new regime of Section 115BAC has been increased from Rs. 7 lakhs to Rs. 12 lakhs, and the maximum rebate amount has been increased from Rs. 25,000 to Rs. 60,000. • Where resident individuals opt for the new tax regime of Section 115BAC, the incomes chargeable to tax at special rates (for example, capital gains taxable under Section 111A, Section 112, etc.) shall be excluded from calculating the Section 87A rebate. |
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TDS/TCS Rates
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3. |
The TDS rate under Section 194LBC on income payable by a securitisation trust to a resident investor is reduced from 25%/30% to 10%. |
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4. |
The threshold for TDS on interest on securities has been set at Rs. 10,000, while the limit for interest on debentures payable to resident individuals/HUFs by public companies has been increased from Rs.5,000 to Rs.10,000. |
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5. |
The threshold for TDS on dividend has been increased from Rs. 5,000 to Rs. 10,000. |
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6. |
The TDS threshold for interest (other than on securities) has been increased from Rs. 50,000 to Rs. 1,00,000 for senior citizens, from Rs. 40,000 to Rs. 50,000 for others when paid by a bank, cooperative society, or post office, and from Rs. 5,000 to Rs. 10,000 in other cases. |
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7. |
The TDS threshold for winnings from lotteries, crossword puzzles, gambling, betting, etc. (excluding online games) has been revised from an aggregate exceeding Rs. 10,000 in a financial year to Rs. 10,000 per single transaction. |
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8. |
The TDS threshold for winnings from horse race has been revised from an aggregate exceeding Rs. 10,000 in a financial year to Rs. 10,000 per single transaction. |
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9. |
The TDS threshold for insurance commission has been increased from Rs. 15,000 to Rs. 20,000. |
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10. |
The TDS threshold for commission and other payments on sale of lottery tickets has been increased from Rs. 15,000 to Rs. 20,000. |
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11. |
The TDS threshold for Commission and Brokerage has been increased from Rs. 15,000 to Rs. 20,000. |
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12. |
The TDS threshold for rent has been revised from Rs. 2,40,000 during the financial year to Rs. 50,000 per month or part of the month. |
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13. |
The TDS threshold for royalty and fees for professional or technical services has been increased from Rs. 30,000 to Rs. 50,000. |
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14. |
The TDS threshold for income in respect of units of |
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15. |
The TDS threshold for compensation on account of compulsory acquisition of an immovable property (other than |
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16. |
The reference of Section 206C(1H) is omitted from section 194Q as TCS provisions under section 206C(1H) has been withdrawn |
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16. |
TCS provisions under section 206C(1H) on the sale of goods have been withdrawn with effect from 01-04-2025. |
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17. |
Section 206AB, which provides for the deduction of tax at higher rates if the payee fails to furnish his return of income for a specified period, is omitted. Consequently, its reference in Section 194S has also been omitted. |
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18. |
Section 206CCA, which provides for the collection of tax at higher rates if the payee fails to furnish his return of income for a specified period, is omitted. |
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19. |
• The definition of ‘Forest Produce’ has been introduced under Section 206C(1). It shall have the same meaning as defined in any State Act or the Indian Forest Act 1927. • Amendments have been made to section 206C(1) to provide that only such other forest produce (not being timber or tendu leaves) which is obtained under forest lease will be covered under TCS. • TCS rate for: (i) timber or any other forest produce (not being tendu leaves) obtained under a forest lease or (ii) timber not obtained under a forest lease, is reduced from 2.5% to 2% • The threshold limit prescribed under Section 206C(1G) for collection of tax at source by authorised dealer from remittance made under Liberalised Remittance Scheme (LRS) & seller of an overseas tour program package is increased from Rs 7 lakhs to Rs. 10 lakhs. • It is provided that the authorised dealer shall not collect TCS under Section 206C(1G) on remittances in foreign currency from an education loan obtained under Section 80E(3)(b). |
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Salary and House Property Income |
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21. |
Section 17(2) provides a list of perquisites to be included in employees' salary income. It includes the value of any benefit (such as gas, electricity, water, etc.) granted or provided free of cost or at the concessional rate by the employer to an employee whose salary income as a monetary benefit exceeds Rs 50,000. Further, expenditure incurred by the employer for travel abroad on medical treatment of the employee or his family member is regarded as a perquisites if the gross total income of the employee exceeds Rs 2 lakhs. The limits of Rs 2 lakhs and Rs 50 thousand were introduced in 1993 and 2001, respectively. To adjust these limits to reflect changes in the standard of living and economic conditions, the Finance Act 2025 empowers the CBDT to notify the limit in this regard. |
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22. |
Section 23 has been amended to provide that the annual value of up to two house properties shall be nil if the owner occupies the house for his own residence or cannot occupy it for any reason subject to the condition that no rental income is received on these house properties. |
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Income- tax Return |
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23. |
The time limit for filing an updated income-tax return is extended from 24 months to 48 months from the end of the relevant assessment year. The additional tax payable on such updated returns is 25% of the aggregate of additional tax and interest if filed within 12 months, 50% if filed between 12 and 24 months, 60% if filed between 24 and 36 months, and 70% if filed between 36 and 48 months. |
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Capital Gains |
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24. |
ULIPs are now treated as capital assets in all cases where exemption under Section 10(10D) is not available, following the removal of the specific reference to the 4th and 5th provisos in Section 2(14)(c). Accordingly, income from such ULIPs will be taxed as capital gains under Section 45(1B). |
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26. |
Section 115AD is amended to provide that income tax on long-term capital gains from the transfer of securities (other than units referred to in Section 115AB) not referred to in Section 112A, if included in the total income, shall be calculated at a rate of 12.5% |
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27. |
Section 2(14) has been amended to clarify that securities held by investment funds under Section 115UB, if invested as per SEBI or IFSCA regulations, shall be treated as capital assets. Accordingly, income from their transfer will be taxed as capital gains. |
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Deductions |
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28. |
The NPS Vatsalya Scheme allows parents to open NPS accounts for their minor children. The Finance Act 2025 extends Section 80CCD benefits to such contributions, allowing a deduction up to Rs. 50,000 under Section 80CCD(1B). This limit includes contributions to both the parent's and minor's accounts. Withdrawals are taxable, except in case of the minor's death. Partial withdrawals (up to 25%) for education, treatment, or disability are exempt under Section 10(12BA). |
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29. |
Section 80-IAC allows eligible start-ups to claim a 100% deduction on profits for any three consecutive years out of ten from incorporation. The incorporation deadline for claiming this benefit has been extended from 01-04-2025 to 01-04-2030. |
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Taxation of Non-residents |
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30. |
Section 9 is amended to clarify that transactions by non-residents solely for purchasing goods in India for export will not constitute a significant economic presence. |
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31. |
The investment deadline for foreign Sovereign Wealth Funds, Pension Funds, and the Abu Dhabi Investment Authority to claim exemption under Section 10(23FE) has been extended from 31-03-2025 to 31-03-2030. Further, such investments will remain exempt even if gains are treated as short-term under Section 50AA. |
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32. |
A new presumptive tax scheme under Section 44BBD introduced for non-residents providing services or technology for setting up or manufacturing electronics in India. 25% of the total payment is deemed as income, and provisions of sections 44DA and 115A will not apply to such income. |
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33. |
The benefits of the tonnage tax scheme have been extended to Inland Vessels registered under the Inland Vessels Act of 2021. Further, the time limit for the Joint Commissioner to pass an order under Section 115VP(4) has been increased to three months from the end of the quarter in which a qualifying company makes an application to opt for a tonnage tax scheme. |
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IFSC |
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34. |
The cap on the premium for life insurance policies has been removed if the life insurance policies are issued by IFSC-based insurers. |
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35. |
Capital gains from the transfer of equity shares in a domestic company, which is an IFSC unit, by a non-resident or IFSC unit are exempt from tax under Section 10(4H). This exemption applies if the transferor and the domestic company are primarily engaged in aircraft leasing. The scope of this exemption is extended to include cases where both entities are engaged in the ship leasing business. |
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36. |
The dividend income of an IFSC unit primarily engaged in the ship leasing business is exempt from tax under Section 10(34B) if the company paying the dividend is also an IFSC unit engaged in the ship leasing business. |
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37. |
Retail funds and Exchange-Traded Funds (ETFs) located in an IFSC are included under the definition of specified funds for tax exemption under Section 10(4D), provided they meet certain conditions. These funds are classified as resultant funds under Section 47(viiad), ensuring that the relocation of foreign investment funds to such IFSC-based funds is treated as a tax-neutral transaction |
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38. |
The exemption under section 10(4E) is extended to the distribution of income on Over-the-Counter (OTC) derivatives if such contracts are entered into by a non-resident with either Overseas Banking Units or Foreign Portfolio Investors (FPIs) operating in an IFSC. |
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39. |
• Only direct participation by Indian residents will be considered for the 5% threshold limit. • This condition must be met as of 1st April and 1st October of the previous year. If not met on these dates, the condition will still be deemed satisfied if fulfilled within 4 months of the respective date. • An offshore fund will be deemed an eligible investment fund under Section 9A if it meets specified conditions. The Government may relax these conditions if the fund manager is located in an IFSC and commenced operations on or before March 31, 2024. The deadline for the commencement of operations by the fund manager has now been extended to March 31, 2030 |
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Block Assessment |
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40 |
Section 158B(b), which defines “undisclosed income” under the block assessment scheme, has been amended to include virtual digital assets. |
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41 |
• Section 158BA(4) is amended to replace “pending” with “required to be made,” effective from 01-02-2025. • The Finance Act 2025 aligns sub-sections (2)/(3) with sub-sections (5) by adding the words “recomputation”, “reference”, or “order” in sub-sections (5) of Section 158BA. Thus, all actions and proceedings abated can now be revived if the block assessment proceedings are annulled. |
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43 |
• Section 158BB, as substituted by the Finance Act 2025, provides a new methodology to compute the undisclosed income for the block assessment with retrospective effect from 01-09-2024 by inserting sub-section (1A), substituting sub-sections (1), (3) and (5), amending sub-section (2) and omitting subsection (6). • A new clause (d) has been inserted in Section 158BB(1A) by the Finance Act 2025 to provide that the income of certain assesses shall be considered disclosed income where return filing for them is not mandatory, and the tax is deducted from such income. |
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44 |
The Finance Act 2025 inserts a fifth proviso to Section 158BC(1)(a) to enable the extension in the time allowed to file the return by a further period of 30 days if the certain conditions are fulfilled. |
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45 |
• The Finance Act 2025 changes the time limit for completing the block assessment to twelve months from the end of the quarter in which the last authorization for search or requisition was executed • A second proviso to Section 158BE(1) is inserted to give an extension in the limitation period to complete the block assessment where such an extension of 30 days is given. • A similar second proviso has been inserted into Section 158BE(3) to extend the limitation period for the completion of block assessment in the case of other person. |
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46 |
The Finance Act 2025 omitted Section 158BI with retrospective effect from 01-09-2024. Section 158BI provided that the provisions of Chapter XIV-B do not apply to searches initiated or requisitions made before 01-09-2024. |
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Business trust |
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47 |
Section 115UA of the ITA grants a pass-through status to business trusts for interest income, dividend income received by it from a special purpose vehicle (in the case of both REITs and InvITs), and rental income (for REITs). The total income of a business trust is charged to tax at the maximum marginal rate, subject to the provisions of Sections 111A and 112. Section 115UA is amended to include a reference to Section 112A. Following this amendment, the total income of a business trust will be taxed at the maximum marginal rate, subject to the provisions of Sections 111A, 112, and 112A. As a result of this amendment, long-term capital gains (LTCG) from the sale of specified securities will not be taxable for a business trust if the aggregate capital gain during the year does not exceed Rs. 1,25,000. If the capital gain exceeds Rs. 1,25,000, the excess will be taxed at a rate of 12.5% |
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Charitable & Religious Trusts |
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48 |
• The registration period under Section 12AB is extended from 5 to 10 years for smaller charitable trusts or institutions with total income (before exemption) not exceeding Rs. 5 crore in each of the two preceding years. • This extended validity does not apply to trusts or institutions applying for registration for the first time, whether before or after commencing activities. • Explanation to Section 12AB(4) is amended to clarify that an incomplete application for the registration of a trust or institution shall not be considered a specified violation for the purpose of cancellation by the PCIT/CIT |
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49 |
The Finance Act 2025 has amended Section 13(3) to provide that a person is to be treated as a substantial contributor under Section 13(3)(b) if his contribution during the previous year exceeds Rs. 1 lakh or his total contribution during the lifetime of the trust up to the end of previous year exceeds Rs. 10 lakhs. The relatives of substantial contributors shall no longer be treated as specified persons for the purposes of Section 13(3). Further, any concern in which a substantial contributor has a substantial interest shall no longer be included in the category of specified persons under Section 13(3) |
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Transfer Pricing |
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50 |
The Finance Act 2025 introduced provisions to carry out TP analysis over a block of three years: the financial year in question (the first year) and two consecutive years immediately following (later years). The provisions apply from AY 2026-27 and subsequent AYs.. |
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Crypto Assets |
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51 |
A new section is introduced regarding the obligation to file information on crypto assets. The prescribed reporting entity would be required to furnish information regarding transactions in crypto assets. |
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Penalties and Prosecutions |
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No prosecution will be instituted against the collector for failing to pay tax to the credit of the central government if the payment is made at any time on or before the time limit prescribed for filing quarterly statements. |
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52 |
Section 271AAB will not apply to searches initiated on or after 01-09-2024. |
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54 |
The time limit for passing an order under Section 270AA(4) to grant immunity from imposition of penalty or prosecution has been increased to three months from the end of the month in which the Assessing officer receives the application for immunity |
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55 |
Section 275 has been substituted to provide a new time limit for passing orders, imposing the penalty. It is provided that no penalty order shall be passed after six months from the end of the quarter in which any of the specified events occur. |
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Other Amendments |
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59 |
Sections 72A and 72AA |
Sections 72A and 72AA are amended to limit the carried forward loss of a predecessor entity to be offset by the successor entity for a maximum of eight assessment years. Eight assessment years are the years succeeding the assessment year for which such loss was first computed for the original predecessor entity, wherein the original predecessor entity is the predecessor entity in respect of the first amalgamation or first business reorganisation, as the case maybe |
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60 |
• Section 132(8) is amended to provide that the time limit for obtaining approval for retention is one month from the end of the quarter in which the assessment, reassessment, or recomputation order was made • The word ‘authorisation’ is replaced with ‘authorisations’ in Explanation 1 to Section 132 to align with other provisions of the Act. |
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63 |
Chapter-VIII of the Finance Act 2016 |
The Finance Act 2025 amended Chapter-VIII of the Finance Act 2016 and the Income-tax Act to withdraw the equalisation levy from 01-04-2025 entirely |
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64 |
A new sub-clause (iia) into Section 143(1)(a) to allow an adjustment during the processing of ITR. The newly inserted sub-clause provides for adjustment towards any inconsistency in return, as may be prescribed, with respect to the information in the return of any preceding previous year |
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