Key Proposals of Union Budget 2025 - Income Tax

Introduction

On February 1, 2025, our esteemed Finance Minister, Smt. Nirmala Sitharaman, presented the Union Budget 2025, outlining key provisions related to Income Tax, including the following:

• Rates of income-tax;
• Measures to promote investment and employment;
• Simplification and Rationalisation;
• Socio-economic welfare measures
• Tax administration;

Followings Key Amendments are proposed in Budget 2025 (Income Tax)

Revision in tax slab under New Tax Regime

Pre-Budget Position (Applicable for A.Y 2025-26)

Post Budget Position (w.e.f A.Y 2026-27)

Amendment proposed in Rebate u/s 87A

From assessment year 2026-27 onwards, for an assessee, being an individual resident in India whose income is chargeable to tax under the sub-section (1A) of section 115BAC, it is proposed to,-

• enhance the limit of total income for rebate in clause (a) and (b) of first proviso under section 87A, on which the income-tax is payable as per the rates of income-tax under sub-section (1A) of section 115BAC (New Tax Regime), from Rs. 7,00,000/- to Rs. 12,00,000/- and the limit of rebate in clause (a) of first proviso to section 87A from Rs. 25,000/- to Rs. 60,000/-
• such rebate of income-tax is not available on tax on incomes chargeable at special rates (for e.g.: capital gains u/s 111A, 112 etc.).

TDS Threshold Rationalization

Reduction in compliance burden by omission of TCS on sale of specified goods

Introduction

According to section 206C(1H) of the Income Tax Act, if a seller receives more than ₹50 lakh in a year from selling goods, they must collect a tax of 0.1% on the amount that exceeds ₹50 lakh. This applies subject to certain conditions.

Difficulty

Section 194Q of the Act, requires any person being a buyer, to deduct tax at the rate of 0.1%, on payment made to a resident seller, for the purchase of any goods of the value or aggregate of value exceeding fifty lakh rupees in any previous year

Further, it is provided in sub-section (1H) of section 206C of the Act that the provision will not apply, if the buyer is liable to deduct TDS under any other provision of this Act on the goods purchased from the seller and has deducted such amount. Representations have been received that it becomes difficult for the seller to check whether the buyers have ensured the compliance of TDS deduction under 194Q of the Act. This results in both TDS and TCS being made applicable on the same transaction.

Amendment proposed

Therefore, to facilitate ease of doing business and reduce compliance burden on the taxpayers, it is proposed that provisions of sub-section (1H) of section 206C of the Act will not be applicable from the 1st day of April, 2025.

Extending the time-limit to file the updated return (w.r.f 1st day of April 2025)

Pre Budget Position

Section 139(8A) of the Income Tax Act talks about filing an "updated return." This means taxpayers can correct or update their tax return within 24 months (2 years) from the end of the assessment year.

• If the updated return is filed within 12 months, an extra tax of 25% (on total tax and interest) must be paid.
• If it is filed after 12 months but before 24 months, the extra tax increases to 50%.

Post Budget Position

To encourage more people to voluntarily update their tax returns, the government proposed to extend the time limit from 24 months to 48 months (4 years) after end of the relevant assessment year.

• If the updated return is filed between 24 and 36 months, an extra tax of 60% (on total tax and interest) must be paid.
• If it is filed between 36 and 48 months, the extra tax increases to 70%.

It is further proposed to provide that a person cannot file an updated tax return if they receive a show-cause notice under Section 148A after 36 months from the end of the assessment year. However, if the tax department later decides (under Section 148A(3)) that no further notice under Section 148 is needed, the person can still file an updated return within 48 months from the end of the assessment year.

Deduction under section 80CCD for contributions made to NPS Vatsalya

Introduction to NPS Vatsalya

The NPS Vatsalya Scheme, launched on 18 September 2024, allows parents or guardians to open a National Pension Scheme (NPS) account for their children.

• This scheme is specially designed for minors and will be managed by the guardian until the child turns 18 years old.
• Once the child becomes 18, the account will be transferred to their name with all the saved money.
• The account will then be moved into the NPS-Tier 1 Account (All Citizen Model) or another non-NPS scheme account.

Amendment proposed

It is proposed to extend the tax benefits available to the National Pension Scheme (NPS) under Section 80CCD of the Act to the contributions made to the NPS Vatsalya accounts, as follows:

• Tax Benefit for Parents/Guardians: Parents or guardians can get a tax deduction of up to ₹50,000 per year for the money they deposit in their child's NPS account under Section 80CCD(1B).
• Tax on Withdrawal: If the money deposited (along with any interest earned) is withdrawn, it will be taxed at that time.
• Exception in Case of Death: If the minor passes away and the account is closed, the money received by the parent or guardian will not be considered their taxable income.

Important Note

The NPS Vatsalya Scheme allows parents or guardians to withdraw some money from the minor's account in special situations like Education expense, Medical treatment for certain serious illness and Disability (more than 75% ) of the minor

To support this, it is also proposed to insert a clause (12BA) in section 10 of the Act

• The Partial withdrawn amount will not be taxed for the parent/guardian, as long as it is within 25% of the total contributions made.
• The withdrawal must follow the rules set by the Pension Fund Regulatory and Development Authority Act, 2013.

Extension of timeline for tax benefits to start-ups

Introduction

Section 80-IAC of the Income Tax Act gives a tax benefit to eligible startups. They can claim a 100% tax deduction on their profits for three years within the first ten years of starting their business.

To qualify for this benefit, the startup must meet these conditions:

• Turnover Limit - The total business turnover should not be more than ₹100 crore.
• Certification - The startup must have a certificate from the Inter-Ministerial Board of Certification confirming it is an eligible business.
• Incorporation Period - The startup must be registered between April 1, 2016, and March 31, 2025.

Amendment Proposed

• It is proposed to amend the above section so as to extend the benefit for another period of five years, i.e. the benefit will be available to eligible start-ups incorporated before 01.04.2030.
• This amendment will take effect from the 1st day of April 2025.

Obligation to furnish information in respect of crypto-asset

Vide Finance Act 2022, taxation of virtual digital assets (VDA) has been introduced in the Income-tax Act, 1961 ('the Act'), under section 115BBH of the Act in which the transfer of VDA is to be taxed at the rate of 30% with no deduction in respect of expenditure (other than cost of acquisition) to be allowed.

Amendment Proposed

It is now proposed to insert section 285BAA in the Act, being the Obligation to furnish information of crypto-asset, wherein Sub-section (1) of section 285BAA of the Act states any person, being a reporting entity, as may be prescribed, in respect of crypto asset, shall furnish information in respect of a transaction in such crypto asset in a statement, for such period, within such time, in such form and manner and to such income-tax authority, as may be prescribed;

Scheme of presumptive taxation extended for non-resident providing services for electronics manufacturing facility

Introduction

• In order to position India as the global hub for Electronics System Design and Manufacturing, a comprehensive program for the development of semiconductors and display manufacturing ecosystem in India was approved by Government of India. Ministry of Electronics and Information Technology has notified Schemes for setting up of such facilities in India.
• In this context, it has been represented that non-residents will be providing support in setting up of such electronics manufacturing facilities by deploying the technology and providing support services

Amendment Proposed (w.e.f A.Y 2026-27)

• In order to ensure certainty and promotion of this industry, it is proposed to provide a presumptive taxation regime for non-residents engaged in the business of providing services or technology, to a resident company which are establishing or operating electronics manufacturing facility or a connected facility for manufacturing or producing electronic goods, article or thing in India, under a scheme notified by the Central Government in the Ministry of Electronics and Information Technology and satisfies such conditions as prescribed in the rules.
• It is, therefore, proposed, to insert a new section 44BBD, which deems twenty-five per cent (25%) of the aggregate amount received/ receivable by, or paid/ payable to, the non-resident, on account of providing services or technology, as profits and gains of such non-resident from this business.

Removal of higher TDS/TCS for non-filers of return of income

Introduction

Section 206AB deduction of tax at higher rate when the deductee specified therein is a non-filer of income-tax return. Section 206CCA of the Act, requires for collection of tax at higher rate when the collectee specified therein is a non-filer of income-tax return. This is subject to other conditions specified in the two sections.

Difficulty

Representations were received from various stakeholders that it is difficult for the deductor/collector, at the time of deduction/collection, to verify whether returns have been filed by the deductee/collectee, resulting in application of higher rates of deduction/collection, blocking of capital and increased compliance burden.

Amendment Proposed

• To address this issue and reduce compliance burden for the deductor/collector, it is proposed to omit section 206AB of the Act and section 206CCA of the Act.
• These amendments will take effect from the 1st day of April, 2025.

No TCS to Collect if remit for education purpose

Proviso Propose to be added in Section 206C that the authorised dealer shall not collect the TCS if the amount being remitted out is a loan obtained from any financial institution as defined in clause (b) of sub-section (3) of section 80E, for the purpose of pursuing any education:";

Exemption from prosecution for delayed payment of TCS in certain cases

Introduction

Section 276BB of the Act provides for prosecution in case of failure to pay the tax collected at source to the credit of Central Government. The provision of the said section states that if a person fails to pay to the credit of the Central Government, the tax collected by him as required under the provisions of section 206C of the Act, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.

Amendment Proposed

It is proposed to amend section 276BB of the Act to provide that the prosecution shall not be instituted against a person covered under the said section, if the payment of the tax collected at source has been made to the credit of the Central Government at any time on or before the time prescribed for filing the quarterly statement under proviso to sub-section (3) of section 206C of the Act in respect of such payment.