Top 10 Direct Tax Highlights of Union Budget 2025

The Union Budget 2025 brings significant reforms to direct taxation, aimed at reducing the tax burden on the middle class, simplifying compliance, and fostering business growth. Notable changes include tax relief for incomes up to ₹12 lakh, revised tax slabs, and increased TDS thresholds. Additionally, the startup sector receives a boost, and compliance measures have been further streamlined. Below are the top 10 highlights of direct tax proposals in the Budget 2025:

1. No Income Tax on Earnings Up to ₹12 Lakh

A major relief for the middle class! The revised tax slabs and increased rebate under Section 87A now ensure that individuals with an annual income up to ₹12 lakh pay zero income tax. However, this rebate does not apply to capital gains or special income.

New Tax Regime Slabs for FY 2025-26

Tax Calculation for Income up to ₹12 Lakh (Other than Salaried Individuals)

Additional Benefit for Salaried Individuals

For salaried individuals, the standard deduction of ₹75,000 further increases the tax-free income limit to ₹12.75 lakh, meaning no tax is payable for income up to this level.

2. Revised Income Tax Slabs

The tax slabs have been overhauled with wider ranges. The highest tax rate of 30% now applies only to incomes above ₹24 lakh under the new tax regime.

3. Higher TDS Limits

Several TDS thresholds have been increased to ease compliance:

• Rent (Section 194-I): Increased to ₹6 lakh per annum.
• Interest on deposits (Section 194A) for senior citizens: Increased to ₹1 lakh.
• Professional/Technical services (Section 194J): Increased to ₹50,000.
• Commission/Brokerage (Section 194H): Increased to ₹20,000.

4. Extended Timeline for Updated Tax Returns

Missed filing your tax return? Now, taxpayers have 4 years instead of 2 to file an updated return, promoting voluntary compliance. For instance, ITR-U for FY 2021-22 can now be filed until March 31, 2025.

5. Simplified Registration for Charitable Trusts

• Small charitable trusts and institutions now have a longer registration period (10 years instead of 5 years).
• Minor procedural issues will no longer lead to cancellation of registration.

6. Boost for Startups

The eligibility period for 100% tax exemption under Section 80-IAC has been extended for startups incorporated until April 1, 2030, fostering entrepreneurship and economic growth.

7. Rationalization of TCS (Tax Collected at Source)

• No TCS on education loans: If remittances are made under an education loan taken from a specified financial institution (Section 80E), no TCS will be collected.
• Threshold for TCS on overseas remittances and tour packages: Increased to ₹10 lakh per year.
• TCS on the sale of goods (Section 206C(1H)) will be removed from April 1, 2025.
• No prosecution for delay in TCS payments if the tax is deposited before the due date of quarterly returns.

8. Arms-Length Price Simplification for Transfer Pricing

A new scheme will allow for pre-determined arm\'s-length pricing for transfer pricing assessments for a block of 3 years, reducing disputes and compliance burdens for businesses.

9. Extension of Immunity Processing Period

The processing period for applications seeking immunity from penalty and prosecution (Section 270AA) has been extended to 3 months from the end of the month in which the application is received.

10. Annual Value Exemption for Two Self-Occupied Homes

• Homeowners can now claim exemption for the annual value of two self-occupied homes, even if the second house is vacant.
• The previous condition requiring non-occupation due to employment, business, or profession elsewhere has been removed, allowing more flexibility for taxpayers.

Conclusion

The Union Budget 2025 has introduced several taxpayer-friendly measures aimed at reducing the compliance burden and enhancing ease of doing business. The increased tax-free threshold, extended startup incentives, and rationalized TDS/TCS provisions make this budget particularly beneficial for salaried individuals, small businesses, and startups. These changes are expected to promote voluntary compliance and provide much-needed relief to taxpayers across the country.