The Union Budget for 2025 introduces fresh Income Tax Rules effective from 1 April 2025. These rules bring a simplified tax regime alongside the existing one. Taxpayers choose between the old and the new regime before filing returns. The new regime features seven tax slabs, higher rebates, bigger standard deductions and easier compliance.
Income Tax Rules 2025: Major Changes
| Change Area | Details |
|---|---|
| Effective Date | 1 April 2025 |
| New Tax Slabs (New Regime) | Up to ₹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% |
| Rebate under Section 87A | Up to ₹60,000 for income up to ₹12 lakh |
| Standard Deduction | ₹75,000 for salaried individuals |
| 80CCD(1B) Deduction | Additional ₹50,000 for NPS Vatsalya |
| Self-Occupied Property Exemption | Two properties permitted |
| TDS Thresholds | Senior citizens’ interest threshold raised to ₹1.5 lakh; rent and commission limits increased |
| TCS Threshold for LRS | ₹10 lakh |
| ITR Filing Deadline | 15 September 2025; belated until 31 December 2025 |
| New Income Tax Act 2025 | Replaces 1961 Act; sections reduce from 819 to 536; words cut from 512,000 to 260,000 |
Seven-Tier Tax Slabs Under the New Regime
The new tax regime arranges income into seven distinct slabs:
- Up to ₹4 lakh: No tax
- ₹4–8 lakh: 5%
- ₹8–12 lakh: 10%
- ₹12–16 lakh: 15%
- ₹16–20 lakh: 20%
- ₹20–24 lakh: 25%
- Above ₹24 lakh: 30%
This structure applies only if a taxpayer opts for the new regime. Under the old regime, exemption limits remain at ₹2.5 lakh for those below 60, ₹3 lakh for senior citizens and ₹5 lakh for super senior citizens. Higher incomes face the same rates as before. Choosing between the two regimes depends on individual deductions and exemptions.
Higher Rebate Under Section 87A
Section 87A helps middle-income taxpayers by offering a rebate on their tax liability. Under the 2025 rules, this rebate increases to ₹60,000. If total taxable income does not exceed ₹12 lakh, the rebate zeroes out the tax liability entirely. In practice, a salaried person earning up to ₹12.75 lakh can have no tax payable after applying the rebate and the standard deduction.
Bigger Standard Deduction for Salaried Individuals
Salaried taxpayers enjoy a flat standard deduction of ₹75,000 under the new rules. This deduction replaces allowances for travel, medical and other perks that form part of salary. Higher deduction reduces taxable income and simplifies payroll documentation. This deduction applies only under the new regime. Under the old regime, standard deduction remains at ₹50,000.
Additional Deduction Under Section 80CCD(1B)
The National Pension Scheme (NPS) Vatsalya account now qualifies for an extra deduction of ₹50,000 under Section 80CCD(1B). This deduction comes on top of the ₹1.5 lakh limit under Section 80C. Taxpayers who contribute to NPS Vatsalya for the benefit of a child or dependent can claim this additional relief. This change encourages long-term retirement savings alongside existing investment options.
Two Self-Occupied Properties Allowed
A key relief under the new regime allows a taxpayer to claim up to two self-occupied properties as exempt from tax on rental value. Earlier, only one property qualified for this exemption, while the second property attracted notional rent calculations. Now, a taxpayer can hold two houses for personal use without facing additional tax. This change eases the compliance burden on families owning multiple homes.
Raised TDS and TCS Thresholds
Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) thresholds rise to reduce small deductions:
- TDS on Senior Citizens’ Interest: Now applies only if interest income exceeds ₹1.5 lakh from banks or post offices.
- TDS on Rent and Commission: Limits for deducting TDS on rent, professional fees and contractor payments increase, easing compliance for small payers.
- TCS on Liberalised Remittance Scheme (LRS): Now kicks in only when foreign remittances exceed ₹10 lakh in a year.
- Removal of Higher TDS for Non-filers: Sections that imposed extra TDS on those who failed to file last year’s return no longer apply, simplifying compliance for small taxpayers.
These higher thresholds reduce paperwork and improve cash flow for individuals and small businesses.
Extended ITR Filing Deadlines
The filing deadlines shift to accommodate more thorough preparation:
- Regular Filing: Up to 15 September 2025 for returns of Financial Year 2025-26.
- Belated Return: Until 31 December 2025, with prescribed fees.
- Revised Return: Taxpayers can correct mistakes by filing a revised return up to 12 months after the original deadline or 48 months for certain cases.
Early preparation, timely gathering of documents and use of new online forms on the income tax portal ensure error-free filing within these extended windows.
Complete Overhaul with Income Tax Act 2025
A new law replaces the Income Tax Act of 1961:
- Sections Streamlined: From 819 sections to 536.
- Text Halved: From over half a million words to roughly 260,000 words.
Key highlights:
- Capital Gains: Premium paid on ULIPs over ₹2.5 lakh attracts short-term capital gains tax at 20% and long-term at 12.5%.
- Cryptocurrency Taxation: All gains from digital assets come under taxable income.
- Unified Definitions: Terms like “agricultural income” and “capital asset” receive clear definitions.
This overhaul clarifies ambiguous provisions, reduces overlaps and makes the law reader-friendly.
How to Choose Between Old and New Regime
Taxpayers evaluate both regimes by:
- Listing Deductions: Section 80C, 80D, home loan interest, etc.
- Calculating Tax: Apply slabs and deductions under both old and new rules to forecast liability.
- Comparing Net Tax: Choose the regime with lower net tax after all deductions.
- Lock-in Choice: Once selected while filing, a taxpayer cannot switch within that assessment year except for business income cases.
Careful comparison ensures maximum savings and compliance with Income Tax Rules.
Preparing for Tax Filing Under New Rules
To file returns seamlessly, a taxpayer should:
- Gather Documents: Form 16, investment proofs, bank interest certificates, rent receipts, home loan statements.
- Update Bank Details: Ensure correct IFSC and account number for refunds.
- Verify TDS Entries: Match Form 26AS with TDS certificates.
- Use Offline Utilities: Download the latest ITR utilities and read the updated user manual.
- Seek Professional Help: Consult a chartered accountant for complex cases, especially involving business income or foreign assets.
Early action avoids last-minute rush and reduces chances of errors.
Impact on Taxpayers and Economy
The Income Tax Rules reshape tax planning and economic behaviour:
- Higher Disposable Income: Larger standard deductions leave more money in wallets.
- Boost to Retirement Savings: Extra NPS relief drives long-term investments.
- Real Estate Decisions: Owners of two homes face no notional rent, encouraging property investment.
- Ease of Compliance: Fewer deducted TDS cases and extended deadlines reduce administrative load.
- Informal Sector Inclusion: A clear law and simpler forms draw more taxpayers into the formal system.
These changes aim to improve compliance rates and support growth.
Frequently Asked Questions
The new regime features seven slabs from nil tax up to ₹4 lakh to 30% above ₹24 lakh.
It offers a rebate of up to ₹60,000 for taxable income up to ₹12 lakh.
Yes. The new regime allows two self-occupied properties without attracting notional rent.
Regular deadline is 15 September 2025; belated returns can be filed until 31 December 2025.
Yes. All gains from cryptocurrency and virtual assets come under taxable income.
Income Tax Rules 2025 bring a fresh tax structure, bigger deductions, higher thresholds for TDS and TCS, extended filing dates and a modernised law. Taxpayers who compare old and new regimes, plan investments wisely and update their records stand to gain the most. Early preparation, accurate document submission and professional guidance help navigate these changes with confidence. Embracing the new rules ensures compliance, maximises savings and contributes to a transparent tax environment.
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