Major Tax Reforms From April 1: No Tax On Income Up To ₹12 Lakh, Key Updates

New Delhi, April 3, 2025: The new financial year 2025-26 brings significant income tax reforms in India, effective from April 1, 2025. These changes, aimed at simplifying the tax system and reducing compliance burdens, introduce new tax slabs, updated ULIP taxation, TDS adjustments, and enhanced deductions. Here’s a breakdown of the key changes taxpayers should be aware of.

1. Revised Income Tax Slabs Under the New Regime

The government has introduced updated tax slabs, offering significant relief, particularly for middle-income earners:

• Up to ₹4 lakh – No tax
• ₹4 lakh to ₹8 lakh – 5%
• ₹8 lakh to ₹12 lakh – 10%
• ₹12 lakh to ₹16 lakh – 15%
• ₹16 lakh to ₹20 lakh – 20%
• ₹20 lakh to ₹24 lakh – 25%
• Above ₹24 lakh – 30%

A key highlight is zero tax liability for incomes up to ₹12 lakh due to a rebate under Section 87A of the Income Tax Act, 1961. For salaried individuals earning up to ₹12.75 lakh, the standard ₹75,000 deduction ensures no tax burden. However, taxpayers must file their Income Tax Return (ITR) to claim this benefit.

2. Taxation Changes for ULIPs

The taxation of Unit Linked Insurance Plans (ULIPs) has been revised:

• Short-term capital gains – 20% tax
• Long-term capital gains – 12.5% tax (without indexation benefits)

This applies to ULIPs with an annual premium exceeding ₹2.5 lakh, and proceeds not exempt under Section 10(10D) will be taxed as capital assets.

3. Adjustments to TDS Rates and Thresholds

The new reforms reduce TDS rates and increase exemption thresholds, benefiting taxpayers:

• Securitization trusts will now deduct TDS at 10% (under Section 194LBC).
• Increased TDS exemption limits under sections 193, 194A, and 194 mean lower deductions for many individuals, leaving them with higher take-home income.

4. End of Higher TDS/TCS for Non-Filers

Previously, non-filers of ITRs faced higher TDS/TCS rates, causing additional financial burdens. Effective April 1, 2025, this provision is removed, making tax compliance easier.

5. Other Key Tax Reforms

• Medical Treatment Perquisites: Tax-free perquisites for employees traveling abroad for medical treatment (self or family).
• Simplified Property Valuation: Taxpayers can now declare two self-occupied properties with an annual value of zero, simplifying ITR filing.
• NPS Vatsalya Contributions: Deductions for NPS Vatsalya scheme under Section 80CCD (available only under the old tax regime).
• No Prosecution for Late TCS Payments: Delayed Tax Collected at Source (TCS) payments won’t result in prosecution if cleared before the quarterly statement filing deadline.
• Extended Time for Updated Returns: Taxpayers now have 48 months (instead of 24 months) from the assessment year’s end to file updated returns.
• ITR Cross-Verification: The Income Tax Department will now compare ITR filings from different years to identify inconsistencies.

Conclusion

These new tax reforms are expected to benefit a wide range of taxpayers, from salaried professionals to business owners and investors. With higher exemptions, simplified filing, and reduced compliance burdens, the government aims to create a more taxpayer-friendly system. Filing an accurate ITR on time will be key to maximizing these benefits.