India Budget 2025-26

Regulatory Information:

Regulation: Income Tax Act, 1961 (‘the Act’)

Notification/Circular No: The Finance Bill, 2025 (Bill No. 14 of 2025)

Notification date: February 01, 2025

Source: https://www.indiabudget.gov.in/

Updates in Compliance:

Summary:

The Hon’ble Finance Minister of India presented the Budget for the Fiscal year 2025-26 on February 1, 2025.

This Budget proposes significant changes in the tax slabs and other amendments, aimed at providing tax reliefs, addressing taxpayer challenges, and rationalising various provisions.

Effective Date: Financial Year 2025-26 (Assessment Year 2026-27)

Key Proposals of the Budget:
The first and foremost important announcement with the moto to “trust first, scrutinise later”, it is proposed to introduce the New Income Tax Bill next week. It will aim to simplify the compliance and easing the burden on taxpayers, administrators and reducing litigation.

Proposal announced impacting payroll compliances are summarised below:

1) Revised Tax Slab for New Tax Regime –

In recognition of the contribution of the middle class in nation building, a significant and one of most talked about amendment is the change in the tax slabs and 87A rebate under the new tax regime. Below are the tax slabs proposed under the new regime:

The tax rates for the old regime and surcharge on income-tax remains unchanged.

2) Changes in Tax Rebate –

The rebate under the new tax regime is proposed to increase to INR 60,000 (from INR 25,000) for total income up to INR 12,00,000 (from INR 7,00,000) while the rebate amount of the old regime remains the same.

Impact of change in the tax slab and tax rebate under Section 87A of the Act:

Changes proposed in the tax slabs along with Section 87A rebate will give significant tax relief to the taxpayers amounting to INR 80,000, for people earning a total income up to INR 12,00,000.

Moreover, people earning total income of more than INR 12,00,000 and opting for New Tax Regime, while not be eligible for rebate under Section 87A of the Act, will still get benefit up to INR 110,000 depending on their total income.

3) Amendment of Section 23(2) of the Act –

The Budget also proposed an amendment to Section 23(2) of the Act clarifying the determination of the annual value of self-occupied properties.

Under the revised provision, the annual value of a house will be considered nil if:

• The property is occupied by the owner for personal residence, or
• The owner is unable to occupy the property due to specific circumstances.

This will also simplify the compliance for the people who were unable to occupy the house property for different reasons and had to bear additional tax without earning income, if the earlier mentioned reasons were not satisfied.

4) Amendments to Section 17(2) of the Act –

In addition, this Budget also proposes amendment to Section 17(2) of the Act regarding perquisites. Key changes include:

• Replacing the fixed amount of INR 50,000 in sub-clause (iii) in paragraph (c) of Section 17(2) of the Act with “such amount as may be prescribed”.
• Based on the above enhanced limit, it will exempt certain employee amenities and benefits from being treated as taxable perquisites.
• Substituting the fixed limit of INR2,00,000 in clause (B) of the proviso to clause (vi) of sub-clause (viii) of Section 17(2) of the Act with “such amount as may be prescribed”.
• Exclude employer-sponsored overseas medical travel expenses for employees or their family members from being classified as perquisites, if they are within the prescribed limits.

5) Tax Benefits for NPS Vatsalya Accounts –

The Government also proposed extending benefits under Section 80CCD of the Act to contributions made to NPS Vatsalya accounts on par with the other approved NPS schemes.

Parents or guardians can claim a deduction of up to INR 50,000 for amounts deposited into a minor’s NPS account in aggregate. Additionally, partial withdrawals from a minor’s account, up to 25% of contributions, will be exempt from the parent’s or guardian’s total income, subject to meeting certain conditions.

Our Analysis:

This Budget has been called as a Dream Budget for the Middle Class.

With a significant enhancement of rebate up to total income of INR 12,00,000 and revised tax slabs giving maximum benefit up to INR 110,000, it has not only aimed to reduce tax burden on the middle class but also will help the Government to increase the consumption in the economy and reduce inflation.

Apart from above, it aimed to ease compliances, simplify the regulations and moved towards encouraging people to be compliant and pay taxes honestly. This will help the Government further to widen their tax base and reduce litigation.

Government has been consistently giving benefits for NPS schemes and as one of the measures NPS Vatsalya scheme was introduced in the last budget. To make it more lucrative and encourage people to save for their children, tax benefits at par have been introduced with other approved NPS schemes.

Last but not the least, the new Income Tax Bill to be introduced will bring simplicity and will focus on the spirit of “Nyaya”. It will be close to half of the present law in terms of both chapters and words.

This Budget is not just about numbers – it is about empowering the middle class and driving India’s economic growth. This Budget brings a series of initiatives to continue its journey to become Viksit Bharat by 2047, a vision to make India a developed nation by its 100^th anniversary of Independence.