2025 Tax Reforms India

• Income Tax for Individuals

1. In the new tax regime, exemption (rebate) has been raised to the level that individuals having an income of ₹12 lakh (₹12,00,000) per annum need not pay any tax.
2. For salaried taxpayers, because of a base deduction of ₹75,000, the effective threshold becomes ₹12.75 lakh.
3. New tax slabs under the new tax regime (applicable FY 2025-26 / AY 2026-27) are:

• Important caveats:

1. These slabs are retained under the new tax regime (under section 115BAC) — the old/older tax regime remains intact.
2. Incomes levied at special/flat rates (like some capital gains, winnings) may be below the rebate threshold and thus will not gain from the rebate threshold.

• Other individual-relief provisions:

1. Limit of TDS for interest income of senior citizens raised from ₹50,000 to ₹1 lakh.
2. For other resident individuals, TDS threshold on interest has also been relaxed (e.g., from ₹40,000 to ₹50,000) and on mutual fund dividends from ₹5,000 to ₹10,000.
3. The time limit for submitting a revised return (to complete omissions) has been raised from 2 years to 4 years.

• Corporate / Business / International Tax Changes

1. No shift in the headline corporate tax rate in the Indian firm's Budget.
2. Transfer Pricing (TP) & international transaction reforms:

   • The Budget suggests provisions allowing similar international or listed domestic transactions to avail the same arm's length price for a 3-year block period from April 1, 2026, ease of compliance/disputes.

   • Safe-harbour rules and documentation rationalisation to eliminate litigation.

3. Presumptive tax for non-resident corporations in the electronics manufacturing units sector: a regime where 25 % of gross turnover is taken as taxable revenue, in the case of ESDM (electronics system design & manufacturing) units.
4. The government also introduced a fresh direct tax bill: a revamped version of the Income tax Act to replace the twenty-year-old law (see section below under compliance/legal reforms).

• Others / Deductions / Exemptions

1. Salaried taxpayers still retain the normal deduction (at ₹75,000 in the new regime).
2. Specific savings/investments: e.g., NPS withdrawals on or after Aug 29 2024, are tax-free.
3. Note: Some tax benefits of the old regime (e.g., senior citizens' enhanced limits) continue as before.

Indirect Tax / Goods & Services Tax (GST) Reforms

• Major reform: Govt on Sept 22, 2025 introduced a sweeping GST reform (at times called "GST 2.0").

• Key features of this GST reform:

1. The four‐slab GST regime (5 %, 12 %, 18 %, 28 %) has been simplified to key slabs of 5% and 18%. Added a fresh special rate of 40% on "luxury/sin goods" (luxury automobiles, cigarettes). Essentials / merit goods such as soaps, toothpaste, packaged foods, small-cars, ACs, televisions: some of these have been brought down to 5% or 18% reducing cost to the consumer.
2. Individual health & life insurance products have been exempted from GST.
3. The reform is to stimulate domestic demand and simplify compliance for traders/businesses.

Compliance, Litigation and Legal Framework Reforms

• The government is making the direct tax law simpler: A new bill—Income‑tax (No. 2) Bill, 2025—is introduced, cutting down the number of sections from the earlier Act (e.g., from ~819 sections to ~536) and re-organising chapters to improve ease.

• The aim is to reduce litigation, simplify tax collection and promote voluntary compliance.

• Rationalisation of TDS/TCS rates, threshold levels and simplicity of compliance burden. Eg: raising thresholds for TDS on interest, rent, remittances.

• For example: TCS (Tax Collected at Source) threshold on remittances under the LRS (Liberalised Remittance Scheme) has been raised to ₹10 lakh from ₹7 lakh.

Sector-Specific & Incentive-Driven Measures

• This year’s Budget really puts the spotlight on manufacturing, especially electronics. By rolling out things like presumptive taxation for ESDM units, the government is making it easier for foreign companies to set up shop in India.

• There’s also a clear focus on the middle class and boosting spending. Changes like higher exemption limits, revised tax slabs, and GST cuts are all designed to get people to spend more, save more, and invest.

• Sure, we don’t have every detail yet, but it’s obvious these reforms are setting the stage for tax regimes that actually help growth in sectors like manufacturing and exports. We’ll get the specifics as new rules come out.

Implications & Key Take-Away Points

Here’s what these reforms really mean for you, businesses, and the economy:

• If you’re earning up to about ₹12 lakh (₹12.75 lakh if you count the standard deduction on your salary), you won’t pay any income tax under the new system. That’s more money in your pocket.

• For people in the middle and upper-middle income range, the new tax slabs lower your tax bill in many cases. But if you’re in the very high-income group, not much changes—the surcharge rules are basically the same.

• On the paperwork front, life gets a bit easier. With simpler rules, higher thresholds for TDS and TCS, and more time to update your returns, you’re not under as much pressure to comply.

• For companies—including multinationals—the changes around transfer pricing and expanded presumptive schemes are a clear win. These tweaks make it easier to do business in India.

• On the consumer side, GST rates have dropped for a bunch of everyday goods. That means things get a little cheaper, and people might spend more, which should give demand a bit of a push.

• Now, the flip side: the government gives up some revenue with these tax breaks. They’ll have to make up for it somewhere, maybe by finding new ways to grow the tax base or boost economic growth.

• A quick heads-up—dig into the details. The old tax regime is still around. Not every type of income gets the same benefit: capital gains and lottery winnings, for example, mostly stay out. And if you’re earning way at the top, your effective rate doesn’t really shift. Each relief or incentive comes with its own rulebook, so keep an eye out for updates as the notifications roll in.

What to Watch / Upcoming Changes

• Finishing up the rules under the new Income-tax Bill is a big deal—everyone’s waiting to see the exact wording, who’s actually covered, how the transition from old to new will work, and what happens to people caught between both systems.

• Then there’s GST 2.0. Expect a long list of goods and services moving to different tax slabs. That’s going to shake things up for businesses and traders, and the compliance process will change too.

• Keep an eye out for new notifications or rules about presumptive tax schemes, especially for non-residents and manufacturing companies.

• The government might also roll out more details for sectors like digital assets and cryptocurrency. There’s a good chance we’ll see fresh notifications or even separate tax provisions here.

• On top of all this, states will probably tweak their own tax incentives—things like state GST or local levies—to line up with what’s happening at the central level.

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