Budget 2025: Key Revisions and Amendments in the Income Tax Act

The Union Budget 2025, presented on 1st February 2025, brings several key amendments to the Income Tax Act, impacting taxpayers across different categories. From changes in tax slabs to revisions in exemptions and deductions, the proposals aim to streamline compliance and enhance tax efficiency. This blog provides an overview of the significant modifications introduced in the Income Tax Act.

For changes related to TDS and TCS provisions, please refer to our separate blog covering those aspects in detail.

INDIVIDUAL TAXATION

No Income Tax upto Rs. 12 Lakhs (Rs. 12.75 lakhs for Salaried Person) for New Scheme

Rebate under Section 87A has been increased the total income from Rs. 7,00,000/- to Rs. 12,00,000/- and the limit of rebate from Rs, 25,000/- to Rs. 60,000/-. This is for the New Scheme.

This shall be with effect from Assessment Year 2026-27.

Slab Rates

Default Scheme (Earlier known as New Scheme)- Proposed

Old Scheme- As it is 

Note- This slab rates is for people whose age is below 60 years.

There is no change in Surcharge and Cess.

Extending the time-limit to file the updated return for all assessees

The time limit to file the updated return (ITR U) has been extended from 24 months to 48 months (i.e. 2 years to 4 years) years from the end of the relevant assessment year.

Additional tax proposed is:

Filed within	Additional Tax (Tax and Interest)
One Year	25%
Two Years	50%
Three Years	60%
Four Years	70%

However, an updated return can not be filed after 3 years if any notice is received under Section 148 of the Act. Although, the updated return can filed if an order is received determining that it is not a fit case to issue notice under section 148 of the Act.

SALARY

Increase in the limits on the income of the employees for the purpose of calculating perquisites

The word ‘perquisite’ includes the value of any benefit or amenity granted or provided free of cost or at concessional rate by any employer (including a company) to an employee whose income under the head “Salaries” as a monetary benefit does not exceed Rs. 50,000/-

Further, the proviso to clause (2) of section 17 provides that any expenditure incurred by the employer for travel outside India on the medical treatment of an employee or any member of the employee’s family shall not be included in ‘perquisite’, subject to the condition that the gross total income of such employee does not exceed Rs. 2,00,000/-.

It is proposed to amend the above limits of Rs. 50,000/- and Rs. 2,00,000/-

This shall be with effect from 1^st April 2026 (Assessment Year 2026-27)

Annual value of the self-occupied property simplified [Section 23]

Where house property is in the occupation of the owner for the purposes of his residence or owner cannot actually occupy it due to his employment, business or profession carried on at any other place, in such cases, the annual value of such house property shall be taken to be NIL.

It is proposed to amend such benefit to two house properties.

This shall be with effect from 1^st April 2025 (Assessment Year 2025-26)

CHARITABLE TRUST

Increase in Period of Registration of smaller trusts or institutions [Section 12AB(1)]

 Under the Act, the registration of trust or institution was granted for a period of 5 years or provisional registration (where activities have not commenced at the time of filing application for registration) for a period of 3 years.

To reduce the compliance burden for the smaller trusts or institutions, it is proposed to increase the period of validity of registration of trust or institution from 5 years to 10 years for trusts or institutions where the total income of such trust does not exceed Rs 5 crores for the preceding two years. 

This shall be with effect from 1^st April 2025

Rationalisation of ‘specified violation’ for cancellation of registration of trusts or institutions [Section 12AB(4)]

Where registration or provisional registration of a trust or an institution has been granted and subsequently, the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year, shall pass an order in writing, cancelling the registration of such trust or institution.

The specified violation means the application is not complete or it contains false or incorrect information.

It is, therefore, proposed to amend the section, so as to provide that the situations where the application for registration of trust or institution is not complete, shall not be treated as specified violation for the purpose of the said sub-section.

This shall be with effect from 1^st April 2025

Rationalisation of persons specified under sub-section (3) of section 13 for trusts or institutions [Section13(3)]

The exemption granted to charitable trusts excluded the income used or applied, directly or indirectly for the benefit of any person, inter alia,

a person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds Rs. 50,000/-;

• his relative 

• a concern here he has substantial interest

In cases where such person was other than author, founder, trustees or manager, furnishing certain details like relative and concern was a challenge

Therefore, it is proposed to amend excluding the relatives of such person and the concern where such person has substantial interest.

Further, the referred person shall be a person whose total contribution to the trust or institution, during the relevant previous year exceeds Rs. 1 lakhs, or, in aggregate up to the end of the relevant previous year exceeds Rs. 10 lakhs, as the case may be shall be 

OTHERS

Bringing clarity in income on redemption of Unit Linked Insurance Policy (ULIP)
[Section 45]

ULIP is a capital asset only when the exemption under clause (10D) of section 10 does not apply on such policies on account of the applicability of the 4th and 5th proviso and accordingly, taxation as capital gains in case of only such ULIPs. 

It is proposed to rationalise the provisions by providing that ULIP shall be a capital asset charging the tax under Income from Capital Gains. It shall be included in definition of equity oriented fund.

This shall be with effect from 1^st April 2026 (Assessment Year 2026-27)

NPS Vatsalya Scheme

The NPS Vatsalya Scheme, officially launched on 18 September 2024, enables parents and guardians to start a National Pension Scheme (NPS) account for their children. 

A deduction to be allowed to the parent/guardian’s total income, of the amount paid or deposited in the account of any minor under the NPS to a maximum of Rs 50,000/- overall as mandated under sub-section (1B) of section 80CCD. 

Such deposit when withdrawn shall be chargeable to tax. However, any income received on partial withdrawal made out of the minor’s account, shall not be included in the total income of the parent/guardian to the extent it does not exceed 25% of the amount of contributions made by him and in accordance with the terms and condition

This shall be with effect from 1^st April 2026 (Assessment Year 2026-27)

Penalties

Exemption is proposed for prosecution for a term of not be less than three months but which may extend to seven years in case of failure to pay the tax collected at source to the credit of Central Government in cases where 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.

The authority to impose penalty is proposed to be shifted from Joint Commissioner to Assessing Officer under various Sections

Simplification is proposed on bar of limitation for imposing penalties. It is proposed to amend section 275 of the Act to provide that any order imposing a penalty shall not be passed after the expiry of six months from the end of the quarter in which the connected proceedings are completed, or the order of appeal is received by the jurisdictional Principal Commissioner or Commissioner, or the order of revision is passed, or the notice for imposition of penalty is issued, as the case maybe.

Miscellaneous

• Obligation to furnish information of transaction of crypto asset has been proposed with effect from 1^st April 2026

• Scheme of presumptive taxation extended for non-resident providing services for electronics manufacturing facility taxing the income at 25%. This shall be with effect from 1^st April 2026 (Assessment Year 2026-27) [Section 44BBD]

• It is proposed to amend sub-section (8) of section 132 of the Act to provide that the time limit for taking approval for retention shall be one month from end of the quarter in which the assessment or reassessment or recomputation order has been made. [Section 132]

• The definition of Undisclosed Income for Search and seizures is proposed to include Virtual Assets. [Section 158B]

• It is proposed to amend provisions of carry forward of losses in case of amalgamation by clarifying that no carry forward and set off of accumulated loss is allowed after eight assessment years from the immediately succeeding the assessment year for which such loss was first computed for original predecessor entity. These amendments will take effect from the 1st day of April, 2026. [Section 72A and 72AA]

• Exemption to withdrawals and interest accrued by Individuals from National Savings Scheme from taxation on or after 29th day of August, 2024 on which the Department of Economic Affairs providing that no interest would be paid on the balances in the NSS after 01.10.2024. This amendment shall be made with retrospective effect from the 29th day of August, 2024. [Section 80CCA]

• The benefits of exemption is proposed to be extended to Starts up by extending the sunset clause from 1^st April 2025 to 1^st April 2030. Similarly, the sunset clause has been extended to 31^st March 2030 for IFSC.

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