The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, introduces significant reforms aimed at easing the tax burden on individuals, especially the middle class, and simplifying tax compliance for businesses. From changes in the New Tax Regime to rationalization of TDS/TCS, the Budget takes notable strides to enhance economic growth as well as to improve tax administration.
In this article, we’ll explore the key Direct and Indirect Tax updates and how they impact your personal finance.
Direct Tax Updates
1. Revised Income Tax Slabs (New Tax Regime)
One of the most significant announcements in Budget 2025 is the revision of the income tax exemption limit under the New Tax Regime. There is an increase in tax-free limit from  ₹7 lakh to ₹12 lakh. Further, for individuals having income from salary, this limit is ₹12.75 lakh, thanks to the standard deduction of ₹75,000. This move is a substantial relief for taxpayers and has the potential to boost household consumption as well as savings.
The new tax slabs will leave more money in the hands of taxpayers, thereby stimulating investment and spending. The new structure under the New Tax Regime is as follows:
| Income Slab (₹) | New Tax Rate (%) |
|---|---|
| 0 – 4 lakh | Nil |
| 4 – 8 lakh | 5% |
| 8 – 12 lakh | 10% |
| 12 – 16 lakh | 15% |
| 16 – 20 lakh | 20% |
| 20 – 24 lakh | 25% |
| Above 24 lakh | 30% |
2. Increase in Rebate Limit
What’s more, individuals earning up to ₹12 lakh will now pay zero tax due to rebates, which significantly expands the savings for middle-class earners. For example, a taxpayer earning ₹12 lakh will enjoy a tax benefit of ₹80,000 under the new slabs. This step ensures more disposable income and boosts financial planning opportunities.
3. Extension of the Updated Return Filing Timeline
In another taxpayer-friendly move, there is an extension of the timeline to file an updated ITR (Income Tax Return) from 2 years to 4 years. This change gives individuals and businesses ample time to correct errors, ensuring more accurate and compliant tax filings. It’s a clear indication that the government has made commitments to fostering voluntary compliance and providing flexibility for taxpayers.
| Financial Year (FY) | Assessment Year (AY) | Old Rule: Last Date to File Updated ITR (2 Years Limit) | New Rule: Last Date to File Updated ITR (4 Years Limit) |
|---|---|---|---|
| FY 2021-22 | AY 2022-23 | 31st March 2025 | 31st March 2027 |
| FY 2021-22 | AY 2022-23 | 31st March 2025 | 31st March 2027 |
| FY 2021-22 | AY 2022-23 | 31st March 2025 | 31st March 2027 |
| FY 2021-22 | AY 2022-23 | 31st March 2025 | 31st March 2027 |
4. TDS/TCS Rationalization
In addition to the above, to simplify tax deductions at source, the government has also bring in several changes to TDS and TCS rules:
Higher Interest Deduction for Senior Citizens: There is an increase in tax deduction limit on interest income for senior citizens from ₹50,000 to ₹1 lakh. This is a welcome change for retirees relying on FDs and other interest-bearing accounts.
TDS on Rent: Further, there is an increase in threshold limits for TDS on rent has from ₹2.40 lakh to ₹6 lakh. This means that fewer small transactions will attract tax deductions.
TCS on Remittances: The TCS on remittances under the Liberalized Remittance Scheme (LRS) has been increased from ₹7 lakh to ₹10 lakh. Additionally, there is no TCS for education-related remittances funded through loans from financial institutions.
Higher TDS for Non-PAN Holders: To ensure compliance, higher TDS will apply to those who have not provided their PAN details. It’s crucial for all taxpayers to keep their PAN updated to avoid unnecessary deductions.
Indirect Tax Updates
The government has also introduced several changes to Indirect Taxes, focusing on rationalizing Customs Duty to promote domestic manufacturing and value addition. Let’s look at the key highlights.
1. Changes in Customs Duty
Several products have seen revisions in their Customs Duty rates, with the goal of boosting local manufacturing and reducing the cost of critical imports:
Life-Saving Drugs: Customs Duty on 36 life-saving drugs for cancer, rare diseases, and other severe conditions has been fully exempted. This step is expected to provide much-needed relief to patients, making essential medicines more affordable.
Critical Minerals: To support domestic manufacturing of batteries and electronics, Customs Duty on key minerals such as lithium, cobalt, and zinc has been either reduced or removed entirely.
Electronics Sector: The government has continued its focus on the electronics sector by reducing the duty on Open Cell LED TV components to 5%, encouraging local production of TVs and electronic goods.
2. GST and Trade Facilitation Measures
In a bid to simplify compliance, the government has introduced a Voluntary Compliance Scheme for importers and exporters. This scheme allows them to revise their duty payments without incurring penalties, provided the revisions are made voluntarily and before any audit or investigation is initiated.
Additionally, the Customs Act has been amended to ensure provisional assessments are completed within 2 years, providing certainty and transparency for businesses involved in import-export activities.
What Becomes Cheaper & Costlier
Cheaper
Expensive
Medicines
Flat Panel Displays
EV & Mobile Technology
Knitted Fabrics
Electronics & Renewable Energy
Plastic Goods
Tourism & Hospitality
Social Welfare Surcharge
Marine & Fisheries
Medical Equipment
Shipbuilding Industry
Leather & Textile Industry
Telecom & Digital Infrastructure
Critical minerals & battery manufacturing
EV & Mobile Technology
Conclusion
The Union Budget 2025 brings significant relief for taxpayers by revising tax slabs, increasing rebates, and simplifying TDS/TCS rules. On the indirect tax front, the rationalization of Customs Duties on essential imports and electronic goods aims to boost Make in India initiatives. The changes offer taxpayers and businesses alike more flexibility and opportunities for effective tax planning and financial management.
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