Latest Income Tax Rules in India 2025

Under the new tax regime, taxpayers will see a reduction in the tax payable due to the lowering of rates in various brackets. This change means that individuals will retain more of their income, resulting in increased disposable income. However, individuals must consider the overall benefit of opting for the new tax regime versus the old tax regime, as both have distinct benefits.

Increased Standard Deduction Limit

Along with the changes in the income tax slabs, the government has hiked the standard deduction limit for individuals opting for the new tax regime. In FY 2024-25, taxpayers will be able to claim a standard deduction of Rs.75,000, an increase from the previous limit of Rs.50,000. This will benefit salaried individuals and pensioners by reducing their taxable income, thus lowering their tax liability.

For family pensioners, the standard deduction limit has been increased from Rs.15,000 to Rs.25,000. This increase will provide a further advantage to pensioners in reducing their taxable income. It is crucial to note that the standard deduction is available only under the new tax regime for those who opt for it. Individuals choosing the old tax regime will not benefit from this increase, as the standard deduction remains at Rs.50,000 for salaried individuals and pensioners and Rs.15,000 for family pensioners.

Enhanced Deduction for Employer’s Contribution to NPS

Another significant change concerns the National Pension System (NPS). In the new tax regime for FY 2024-25, individuals can claim a higher deduction for the employer's contribution to NPS, which has increased from 10% to 14% of the basic salary. This higher contribution limit will provide additional tax-saving opportunities for those opting for the new tax regime.

However, it is important to understand the caveat: if the total employer's contribution to retirement funds such as NPS, EPF, and superannuation exceeds Rs.7.5 lakh, the excess will be taxed. Additionally, any interest or returns earned from this excess contribution will also be subject to tax, potentially negating the benefits for higher earners.

Under the old tax regime, taxpayers can claim the employer's contribution to NPS over and above the deductions available under sections 80C and 80CCD (1B). Therefore, those opting for the old tax regime still have the opportunity to claim deductions for contributions to NPS, which will provide continued tax-saving avenues.

Changes in Capital Gains Tax Rates

The 2024 budget also brought changes to the taxation of capital gains. For individuals with investments in equity and equity-oriented mutual funds, short-term capital gains (STCG) will now be taxed at 20%, up from 15% in the previous regime. This change is significant for those regularly trading or investing in stocks, as the increased rate will affect their tax liability.

In addition, long-term capital gains (LTCG) on all assets, including financial and non-financial assets, will now be taxed at 12.5%. The new tax rates aim to simplify the taxation structure by eliminating the differentiation between the taxation of different types of capital gains. Additionally, the tax exemption for LTCG from equity and equity-oriented mutual funds has been increased from Rs.1 lakh to Rs.1.25 lakh per financial year, allowing investors to retain more of their earnings.

The indexation benefit, previously available on LTCG from the sale of house property, has been partially withdrawn. Taxpayers now have the option to either pay tax on LTCG with indexation at a 20% tax rate or with no indexation at a 12.5% tax rate for assets bought before 23 July 2024. For properties purchased on or after 23 July 2024, indexation will not apply, and LTCG will be taxed at 12.5%. This simplification of the capital gains tax regime is expected to make it easier for taxpayers to calculate their tax liability.

Changes in the Holding Period for Capital Assets

The holding period required for capital gains to qualify as long-term has been revised. Under the new rules, listed securities will be considered long-term if held for 12 months, whereas non-listed securities must be held for 24 months to qualify for long-term capital gains tax treatment. This change is aimed at reducing confusion and making it easier for taxpayers to determine whether their capital gains are short-term or long-term.

Rationalisation of TDS Rates

The government has rationalised the rates of tax deducted at source (TDS) on certain incomes. This revision affects only specific types of income and aims to streamline the process. While the rates on salary, winnings from lotteries, and payments to non-residents remain unchanged, there have been modifications to the TDS on other income sources.

These changes are designed to ensure that taxpayers face less TDS burden on various incomes, improving their cash flow and overall tax efficiency. By rationalising these rates, the government hopes to reduce the administrative burden on taxpayers while enhancing their ability to claim tax credits.

Tax Credit for TDS/TCS from Other Sources

Salaried individuals can now claim a tax credit for tax deducted at source (TDS) from other income streams, such as rental income, interest income, or dividends, against the TDS on their salary. This provision will help salaried taxpayers adjust their tax liability more effectively and avoid paying excess tax, thus improving their cash flow situation.

Changes in TCS on Luxury Goods Purchases

From 1 January 2025, individuals purchasing luxury goods worth over Rs.10 lakh will be subject to Tax Collected at Source (TCS). The TCS will apply to the value of the goods exceeding Rs.10 lakh, making high-value purchases more expensive. The specific goods to be covered under this provision are yet to be notified by the government. However, this rule aims to widen the tax net and increase the government’s revenue from high-value transactions.

Tax on Buyback of Shares

A significant change to the taxation of buyback proceeds was also introduced. Effective from 1 October 2024, any buyback of shares will be taxed in the hands of the shareholder at the applicable income tax slab rates. This will be similar to the way dividends are taxed under the current regime. This change will affect those individuals who receive buyback proceeds from companies, particularly those in the higher income tax brackets. This adjustment aims to simplify the taxation of buybacks and bring it in line with the taxation of other forms of income, such as dividends.

TDS on Sale of Property

Another change that has been implemented involves the TDS on property sales. If the total payment made for the sale of a property exceeds Rs.50 lakh, the buyer is required to deduct TDS from the total payment, not just from the share of each seller. This revision will prevent tax avoidance, ensuring that TDS is properly deducted from property transactions involving high-value payments.

Changes to TDS on RBI Floating Rate Bonds

The government has introduced new provisions regarding TDS on RBI floating rate bonds. If the interest paid on these bonds exceeds Rs.10,000 per month, TDS will be deducted. This change will affect bondholders, as the interest earned will now be subject to tax before payment is made, reducing the final amount received by investors. The new provision, effective from 1 October 2024, aims to bring RBI floating rate bonds in line with other interest-bearing investments subject to TDS.

Direct Tax Vivad Se Vishwas Scheme 2.0

In an effort to resolve pending disputes between taxpayers and the income tax department, the government has reintroduced the Direct Tax Vivad Se Vishwas Scheme 2.0. This scheme aims to settle ongoing tax disputes by offering a simplified resolution process. The scheme will allow taxpayers to settle their disputes with the tax department without lengthy litigation. This will be a significant relief for taxpayers facing unresolved tax issues and offers a streamlined resolution path.

Aadhaar Enrollment Number No Longer Accepted in ITR and PAN Applications

Starting 1 October 2024, individuals will no longer be able to use their Aadhaar enrollment number in income tax return (ITR) or PAN application forms. This change means that individuals must have a valid Aadhaar number to file their tax returns or apply for a PAN. This new provision strengthens the requirement for Aadhaar-based identification and aims to eliminate loopholes in the tax filing system.

Revised Time Limit to Open Old ITRs

In specific cases, the time limit for reopening old ITRs has been reduced. If the income escaping assessment exceeds Rs.50 lakh, the income tax department has the authority to open old ITRs for up to 7 years. This revision aims to improve compliance and ensure that taxpayers are held accountable for tax liabilities from previous years.

These changes will significantly affect ITR filing for the financial year 2024-25. Taxpayers should make sure they understand these revisions to avoid penalties and benefit from potential tax savings. With the amendments to capital gains tax, TDS rates, deductions, and various other provisions, it is essential for individuals to plan ahead and adjust their tax strategies accordingly. As you prepare your ITR filing for 2025, staying informed about the changes introduced in the 2024 budget will ensure that you can make the most of these adjustments and maximise your tax savings.