Budget 2025 Key Highlights

Direct Tax Proposals:

Government to Introduce New Income Tax Bill in Feb 2025 with a view to simplification of Income Tax Act and will aim to rationalise old obsolete provisions. As suggested by the Honourable Finance Minister Smt. Nirmala Sitharaman, new Income Tax Bill will be almost the half of the present income tax act with a simplified language. Following are major proposals introduced by Smt. Nirmala Sitharaman in her budget speech on 01.02.2025:

Changes in Tax Slabs under New Tax Regime u/s 115BAC:

Tax Slab Rates:

Sr. No	Total Income	Rate
1	Rs.0 to Rs.4,00,000/-	NIL
2	Rs.4,00,001 to Rs.8,00,000/-	5%
3	Rs.8,00,001 to Rs.12,00,000/-	10%
4	Rs.12,00,001 to Rs.16,00,000/-	15%
5	Rs.16,00,001 to Rs.20,00,000/-	20%
6	Rs.20,00,001 to Rs.24,00,000/-	25%
7	Above Rs.24,00,000/-	30%

• No Change in rebate u/s 87A for assessee opting for Old Tax Regime.

• Increased Tax Rebate under New Regime u/s 115BAC(1A) from Rs.25,000/- to Rs.60,000/- which will result in NIL TAX up to the total income of Rs.12,00,000/-

Changes in Tax Deducted at Source:

Various threshold limits of TDS have been proposed to be increased which is outlined in the below table:

Sr. No.	Section	Current Threshold	Proposed Threshold
1	193 - Interest on securities	Nil	Rs.10,000/-
2	194A - Interest other than Interest on securities	(i) Rs.50,000/- for senior citizen; (ii) Rs.40,000/- in case of others when payer is bank, co-operative society, and post office (iii) Rs.5,000/- in other cases	(i) Rs.1,00,000/- for senior citizen; (ii) Rs.50,000/- in case of others when payer is bank, co-operative society, and post office (iii) Rs.10,000/- in other cases
3	194 - Dividend for an individual shareholder	Rs.5,000/-	Rs.10,000/-
4	194K - Income in respect of units of a mutual fund or specified company or undertaking	Rs.5,000/-	Rs.10,000/-
5	194B - Winnings from lottery, crossword puzzle, etc.	Aggregate of amounts exceeding Rs.10,000/- during the financial year	Rs.10,000/- in respect of a single transaction
6	194BB - Winnings from horse race	Aggregate of amounts exceeding Rs.10,000/- during the financial year	Rs.10,000/- in respect of a single transaction
7	194D - Insurance Commission	Rs.15,000/-	Rs.20,000/-
8	194G - Income by way of commission, prize, etc. on lottery tickets	Rs.15,000/-	Rs.20,000/-
9	194H - Commission or Brokerage	Rs.15,000/-	Rs.20,000/-
10	194-I - Rent	Rs.2,40,000/- during the financial year	Rs.50,000/- per month or part of a month
11	194J - Fee for Professional or Technical Services	Rs.30,000/-	Rs.50,000/-
12	194LA - Income by way of enhanced compensation	Rs.2,50,000/-	Rs.5,00,000/-

Changes in Tax Collected at Source:

The Budget introduces TCS rationalization measures, outlined in the table below:

Provision	Current Rule	Proposed Change
TCS Threshold on LRS & Overseas Tour Packages	Threshold of ?7 lakh	Increased Threshold to ?10 lakh
TCS on Education-related Remittances (Loans)	TCS applicable	Exempt if remitted using a loan from a financial institution (as per Section 80E)
TCS on Sale of Goods	0.1% TCS on sales exceeding ?50 lakh (for businesses with turnover > ?10 crore)	Requirement removed
TCS Rate on Timber & Forest Produce (Other than tendu leaves)	2.50%	Reduced to 2%
Prosecution for TCS Non-Payment	Could be initiated for non-payment	No prosecution if TCS is paid before the due date for filing the quarterly statement (Section 206C(3))
Higher TDS/TCS Rates for Non-Filers	Higher rates applied to non-filers	Requirement removed

Changes in IFSC Units Tax Concessions:

Extension of sunset dates for commencement of operations of certain Units of IFSC like leasing of Aircrafts, till March 31, 2030 has been proposed.

Exemption extended to NRIs for Proceeds from LIC Policies u/s 10(10D):

Under the current provisions of Section 10(10D) of the Income-tax Act, proceeds from a life insurance policy, including bonuses, are exempt from tax, but only if the annual premium does not exceed Rs.2.5 lakhs for unit-linked insurance policies (ULIPs) and Rs.5 lakhs for other life insurance policies.

However, to provide equal treatment to non-residents who take life insurance from an IFSC (International Financial Services Centre) Insurance Intermediary Office, exemption is now extended to NRIs for proceeds from such policies without any condition on the maximum premium payable.

Introduction of Presumptive Taxation to Non-Residents providing certain services:

Presumptive Taxation Regime proposed to be introduced for Non-Residents with following key conditions:

Non-Resident to be engaged in the business of providing services or technology to a resident company

• Such Company should be establishing or operating electronics manufacturing facility or a connected facility for manufacturing or producing electronic goods, article or thing in India

• Such operations carried out by such Company should be under the scheme notified by the Central Government in the Ministry of Electronics and Information Technology or other conditions prescribed in rules.

• 25% of the aggregate amount received/ receivable by, or paid/ payable to, the non-resident, on account of providing services or technology to be treated as deemed profit.

Introduction of Tonnage Taxation to Inland Vessels:

To promote inland water transportation industry, benefits of tonnage taxation has been extended to Inland Vessels registered under Inland Vessels Act 2021 and such vessels are to be eligible as “Qualified Ship” as per Section 115VD.

Benefits for Charitable Trusts/Institutions:

Certain specified violations u/s 12AB(4) even for minor defaults in applications under Section 12A(1)(ac) were leading to cancellation of registration of trust or institutions by the Principal commissioner or Commissioner. Now with the proposal in the budget, specific situations have been introduced under explanation to Section 12AB(4) where the application for registration of trust or institution is not complete, shall not be treated as specified violation and will safeguard the trusts/institutions from cancellation of registration.

Increase in period of validity of registration of Small Trusts & Institutions:

For trusts/institutions whose total income before giving effects of Section 11 and 12 exemptions is below Rs.5 Crores during each of the two previous year, preceding to the previous year in which such application is made will now get period of validity from 5 Years to 10 Years if they have made an application as per Section 12A(1)(ac). This will ensure reduction in compliance burden for small trusts and institutions.

Changes in Persons Specified under Section 13(3) for Trusts and Institutions:

As per Section 13 of the Income Tax Act 1961, benefits of Section 11 and Section 12 are not applicable to the trusts or institutions where income of the trust or property of the trust is used or applied for benefits of such persons as mentioned u/s 13(3) either directly or indirectly. These persons are:

(a) he author of the trust or the founder of the institution;

(b) any 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 fifty thousand rupees;

(c) where such author, founder or person is a Hindu undivided family, a member of the family; t

(cc) any trustee of the trust or manager (by whatever name called) of the institution;

(d) any relative of any such author, founder, person, member, trustee or manager as aforesaid;

(e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest.

With the proposal being introduced in this budget, the limit of substantial contribution of the person referred to in clause (b) above has been increased from Rs.50,000/- to Rs.1,00,000/- to remove difficulties in furnishing details of such persons. In addition to this, relative of such persons who have made substantial contribution to trust or institution are also now excluded for the purpose of Section 13(3).

Extension of Startup Tax Benefits:

Startups having:

1. Turnover less than Rs.100 Crores

2. Certificate of eligible of business from the Inter-Ministerial Board of Certification

Can now enjoy tax benefit u/s 80IAC by getting deduction of 100% of profits for 3 consecutive years out of 10 years from the year of incorporation if the said startup has been incorporated between 01.04.2016 to 01.04.2030 (Extension till 01.04.2030).

Rationalisation of Income from redemption of ULIPs u/s 10(10D):

Following major changes are being proposed with respect to taxation of redemption of ULIPs:

1. ULIPs that don’t qualify for exemption u/s 10(10D) will be considered as capital assets.

2. Profits from ULIP redemptions will be taxed as capital gains.

3. Such ULIPs will be treated as equity-oriented funds for tax purposes.

Changes in Employee Perks relating to travel outside India on medical treatment of employee or his family member:

It is proposed in the budget not to consider expenditure incurred by the employer for travel outside India on the medical treatment of such employee or his family member as perquisite.

Deduction for NPS contributions to NPS Vatsalya:

Benefits of NPS contribution to NPS Vatsalya by parents/guardian for the benefits of their minor children is now covered under overall limits of Rs.50,000/- of Section 80CCD(1B). The amount on which deduction has been allowed and is received on closure of the account due to the death of the minor shall not be deemed to be the income of the parent/guardian. Further, partial withdrawal on account of certain contingency situations like education, treatment of specified illnesses (of more than 75%) will be tax exempt to the extent of 25% of the amount of contributions.

NSS Withdrawals exemptions with retrospective effect:

Old Tax Rules on Withdrawals (Section 80CCA):

• Deposits made under certain savings schemes before 01.04.1992 were eligible for tax deductions.

• When withdrawn, the deposit and its interest were taxable as income.

• However, withdrawals due to the death of the depositor were not taxable (as per a 1989 circular).

New Issue arose on account of withdrawal of Interest on NSS:

• A government notification on 29.08.2024 announced that no interest will be paid on National Savings Scheme (NSS) balances after 01.10.2024.

• This forced many individuals to withdraw their funds early, causing tax concerns.

Proposed Amendment for Tax Relief:

• To avoid hardship, withdrawals made on or after 29.08.2024 (from pre-1992 deposits) will be tax-free.

• This applies only to deposits made before 01.04.1992, including any interest earned on them.

• The said amendment is proposed to be applicable retrospectively w.e.f 29.08.2024

Simplification of Self Occupied Property Rules:

For Self-Occupied Property (SOP), the annual value is considered NIL as per the provisions of the Income Tax Act. Earlier, this benefit was available for two properties, provided:

1. The property was self-occupied by the owner, or

2. The owner could not occupy the property due to work/business elsewhere and did not own any other house at that location.

Proposed Change:

The condition requiring the taxpayer to be unable to occupy the house specifically due to work or business elsewhere has been relaxed. Now, the exemption applies if the owner is unable to occupy the property for any reason, making it more inclusive and flexible.

Changes in time-limit for furnishing Updated Return-ITR-U:

Major changes in continuation of voluntary compliance are proposed in the budget to increase the time limit to file ITR-U “Updated Return” from 24 Months to 48 Months from the end of relevant assessment year. Following table summarises additional tax burden if the tax payer opts to file ITR-U after the current expiry of 24 months of the end of assessment year:

Time Limit to File Updated Return	Additional Income Tax Payable
Within 24 months	No change (as per existing rules) (25% of aggregate tax & interest if filed within twelve months and 50% of aggregate tax & interest if filed after 12 months but up to 24 months)
After 24 months but up to 36 months	60% of aggregate tax & interest
After 36 months but up to 48 months	70% of aggregate tax & interest

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GOODS AND SERVICES TAX

• From April 1, 2025, ISD scope expanded to also cover interstate RCM transactions and can distribute ITC on inter-state supplies under reverse charge.

• Clarification on Local and Municipal Funds under the definition of Local Authorities and also provided separate definitions of the terms ‘Local Fund’ and ‘Municipal Fund’ used in the definition of “local authority” under the clause 69.

• Introduction of definition of Unique Identification Marking for digital tax tracking.

• Removal of the provision for time of supply in respect of transaction in vouchers, the same being neither supply of goods nor supply of services.

• Amendment for substitute the words "plant or machinery" with words "plant and machinery". This amendment will be effective retrospectively from 1^st July 2017, notwithstanding anything to the contrary contained in any judgment, decree or order of any court or any other authority. [Section 17(5)(d)].

• From April 1, 2025, Input Service Distributors (ISD) can distribute ITC on inter-state supplies under reverse charge.

• Supplier liability post issuance of credit note shall be reduced only when the ITC previously availed by the recipient is reversed.

Amendments in Section 38 (Communication of details of inward supplies and input tax credit) as follows:

1. The term "auto-generated" has been removed from sub-sections (1) and (2) in reference to the statement of input tax credit (ITC).

2. The word “including” is inserted after “by the recipient” to expand the scope of cases where ITC is not available, covering scenarios beyond the existing provisions.

3. A new provision is added to allow the government to prescribe additional details in the ITC statement.

All the above changes are made to make the Invoice Management System (IMS) now feasible and mandatory.

• Section 39(1) (Furnishing of returns) of the CGST Act to introduce an enabling provision that allows the government to prescribe conditions and restrictions for filing GST returns.

• Sections 107(6) and 112(8) are being amended to mandate a 10% pre-deposit of the penalty amount for appeals before the Appellate Authority and the Appellate Tribunal, respectively, in cases where the appeal involves only a penalty demand, with no associated tax demand.

• A new Section 148A is being inserted to establish an enabling mechanism for the Track and Trace System for specified commodities, while new Section 122B introduces penalties for violations of these provisions.

• A new clause (aa) is being inserted in paragraph 8 of Schedule III of the CGST Act to specify that the supply of goods warehoused in a Special Economic Zone (SEZ) or a Free Trade Warehousing Zone (FTWZ) to any person before clearance for export or to the Domestic Tariff Area (DTA) shall be treated as neither a supply of goods nor a supply of services. (Effective from July 1, 2017)

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CUSTOMS DUTY

The government has reduced multiple customs duties and introduced measures to ease doing business. Here are a few key changes: duty exemptions for EV batteries, textiles, and display manufacturing, duty-free inputs for handicrafts and leather, tax relief on life-saving drugs, and streamlined trade facilitation and compliance timelines.

Handicraft & Leather Industry:

• Handicraft exporters now have one year instead of six months to send their goods, with an additional three-month extension if needed.

• Duty-free inputs for handicraft and leather sectors to boost exports.

Textile Sector:

• Two additional shuttle-less looms in the textile sector will be tax-free.

• Customs duty exemptions granted for looms used in textiles.

Electronics & Manufacturing:

• Parts used in display manufacturing are now exempt from customs duty.

• Customs duty exemptions granted for open-cell panels used in LED/LCD TVs.

• Battery & EV Industry:

• 35 EV battery components and 28 mobile battery components will receive tax exemptions to support battery production.

• Capital goods for lithium-ion batteries used in mobile phones and EVs are now duty-  free.

Shipping & Railways:

• 10-year customs duty exemption for goods related to shipbuilding and shipbreaking.

• Extended time limit for re-exporting railway goods that were imported for repairs.

Tax Structure & Trade Facilitation:

• The government is removing seven more customs duty rates, simplifying the tax structure.

• A cess will be imposed to maintain the overall tax burden, except for a few specific items

• 82 products already subject to a cess are exempt from Social Welfare Surcharge (SWS) to prevent double taxation.

• Time limit introduced for provisional assessments to improve trade facilitation.

• Voluntary post-clearance declarations now allow businesses to pay duty and interest without penalties.

• IGCR Rules revised to extend compliance timelines to one year, with quarterly filings instead of monthly.

Healthcare & Pharmaceuticals:

• 36 life-saving drugs and medicines are now fully exempt from Basic Customs Duty.

• 6 additional life-saving medicines will now be taxed at a reduced customs duty of 5%.

Leather Industry:

• Wet Blue Leather is now fully exempt from Basic Customs Duty (BCD).

Disclaimer: This material and the information contained herein is intended for clients and other Chartered Accountants to provide updates and is not an exhaustive treatment of such subject. We are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business.