Budget 2025-26: What's in it for you?

A Deep Dive into Tax Reforms

The Indian government’s Budget for 2025-26 introduces significant tax reforms aimed at benefiting individuals, businesses, and the economy. This post provides a detailed look at the changes in income tax, indirect taxes, and Tax Deducted at Source (TDS)/Tax Collected at Source (TCS) regulations.

Personal Income Tax Reforms

The most significant changes are in personal income tax, with a new tax regime designed to offer relief, especially for the middle class.

  • No income tax up to ₹12 lakh for normal income (excluding special rate income like capital gains) under the new tax regime.
  • The limit goes up to ₹12.75 lakh for salaried taxpayers due to a standard deduction of ₹75,000.
  • Revised tax slabs and rates across the board, benefiting all taxpayers.

The new income tax structure is as follows:

Income Range 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%
  • Taxpayers with income up to ₹12 lakh will receive a tax rebate, effectively paying no tax.
  • Those with higher income will also see a tax reduction. For example, a person with an income of ₹18 lakh will get a tax benefit of ₹70,000.

Other Key Changes in Personal Income Tax

  • Tax benefits for multiple self-occupied properties: Taxpayers can now claim the annual value of two self-occupied properties as nil without any conditions.

Changes in Tax Deduction at Source (TDS) and Tax Collected at Source (TCS)

The budget introduces several changes to TDS and TCS to ease compliance and reduce the burden on taxpayers.

  • Rationalization of TDS: The number of TDS rates and thresholds will be reduced.
    • The limit for tax deduction on interest for senior citizens is doubled from ₹50,000 to ₹1 lakh.
    • The annual limit for TDS on rent is increased from ₹2.40 lakh to ₹6 lakh.
    • Thresholds for other TDS deductions are also increased.
  • Rationalization of TCS: The threshold to collect tax at source (TCS) on remittances under the RBI’s Liberalized Remittance Scheme (LRS) is increased from ₹7 lakh to ₹10 lakh.
    • TCS on remittances for education from specified financial institutions is removed.
  • TCS on the sale of specified goods of value more than ₹50 lakhs has been removed.
  • TDS/TCS for non-filers of return of income is removed.
  • Decriminalization of delayed payments: The delay for payment of TDS up to the due date of filing statement was decriminalized in July 2024 and the same relaxation is extended to TCS provisions.

Here is a table summarizing some of the changes in TDS and TCS thresholds:

TDS/TCS Section Previous Threshold (₹) Proposed Threshold (₹)
Interest on securities Nil 10,000
Interest other than on securities (for senior citizens) 50,000 1,00,000
Interest other than on securities (others) 40,000 50,000
Interest other than on securities (other cases) 5,000 10,000
Dividend (individual shareholder) 5,000 10,000
Income from mutual funds 5,000 10,000
Winnings from lottery Aggregate exceeding 10,000 during the financial year 10,000 in respect of a single transaction
Insurance commission 15,000 20,000
Income from lottery tickets 15,000 20,000
Commission or brokerage 15,000 20,000
Rent 2,40,000 per year 50,000 per month or part of a month
Professional or technical services 30,000 50,000
Enhanced compensation 2,50,000 5,00,000
Remittance under LRS 7,00,000 10,00,000

Indirect Tax Reforms

The budget also proposes several changes in indirect taxes, primarily related to Customs duties. These changes are aimed at rationalizing tariff structures, supporting domestic manufacturing, promoting exports, and providing relief to the common people.

  • Rationalization of Customs Tariff Structure:

    • The number of tariff rates has been reduced by removing seven rates.
    • Only eight tariff rates will remain, including ‘zero’ rate.
    • Appropriate cess will be applied to maintain effective duty incidence.
    • Social Welfare Surcharge on 82 tariff lines that are subject to cess will be exempted.

  • Relief on Import of Drugs/Medicines:

    • 36 lifesaving drugs and medicines are fully exempted from Basic Customs Duty (BCD).
    • 6 lifesaving medicines are added to the list attracting a concessional customs duty of 5%.
    • Full exemption and concessional duty will also apply on bulk drugs for the manufacture of the above.
    • 37 more medicines along with 13 new patient assistance programs are added to the list of duty free imports by pharmaceutical companies for supply free of cost to patients.

  • Support to Domestic Manufacturing and Value addition

    • Cobalt powder and waste, the scrap of lithium-ion battery, Lead, Zinc and 12 more critical minerals are fully exempted from BCD.
    • Two more types of shuttle-less looms have been added to the list of fully exempted textile machinery.
    • The BCD rate on knitted fabrics covered by nine tariff lines is revised from “10% or 20%” to “20% or ` 115 per kg, whichever is higher”.
    • To rectify the inverted duty structure, BCD on Interactive Flat Panel Display (IFPD) is increased from 10% to 20% and the BCD is reduced to 5% on Open Cell and other components.
    • BCD on parts of Open Cells of LCD/LED TVs is now exempted.
    • 35 additional capital goods for EV battery manufacturing and 28 additional capital goods for mobile phone battery manufacturing have been added to the list of exempted capital goods.
    • Exemption of BCD on raw materials, components, consumables, or parts for the manufacture of ships is continued for another ten years. The same is proposed for ship breaking.
    • BCD on Carrier Grade ethernet switches reduced from 20% to 10%.

  • Export Promotion:

    • The time period for export of handicrafts is extended from six months to one year, further extendable by three months.
    • Nine items have been added to the list of duty-free inputs.
    • BCD on Wet Blue leather is fully exempted.
    • Crust leather is exempted from a 20% export duty.
    • BCD on Frozen Fish Paste (Surimi) is reduced from 30% to 5%.
    • BCD on fish hydrolysate is reduced from 15% to 5%.
    • The time limit for export of foreign origin goods that were imported for repairs is extended from 6 months to one year and further extendable by one year for railway goods.

  • Trade Facilitation:

    • A time limit of two years, extendable by a year, is fixed for finalizing provisional assessments.
    • A new provision will enable importers or exporters to voluntarily declare material facts and pay duty with interest but without penalty.
    • The time limit for the end-use of imported inputs has been extended from six months to one year.

Impact of the Changes in Indirect Taxes

Based on the changes in customs duty, some goods may become cheaper, while others may become more expensive. Here is a summary:

Items that may become cheaper:

  • Medicines and healthcare products: Due to the reduction of BCD on essential drugs, bulk drugs and medicines.
  • Critical minerals: Due to the exemption from BCD for waste and scrap of critical minerals, such as cobalt powder and lithium-ion battery scrap.
  • Leather products: Due to the exemption on Wet blue leather and crust leather from BCD.
  • Textile products: Due to exemption on certain shuttle-less looms.
  • Mobile phones and LED/LCD TVs: Due to reduction of BCD on certain components.
  • Marine products: Due to a reduction of BCD on frozen fish paste and fish hydrolysate.
  • Lab grown diamonds: Due to the removal of IGCR condition for the import of seeds.
  • Lithium-ion batteries: Due to exemptions on capital goods for manufacturing EV batteries and mobile phone batteries.

Items that may become more expensive:

  • Interactive Flat Panel Displays (IFPDs): Due to an increase in BCD from 10% to 20%.
  • Knitted Fabrics: Due to an increase in BCD.
  • Some automobiles : Due to changes in customs duties on different categories of vehicles.

Voluntary Compliance and Ease of Doing Business

  • Voluntary Compliance: The time limit to file updated returns is extended from two years to four years.
  • Ease of Doing Business: Several measures such as streamlining processes for transfer pricing, expanding the scope of safe harbor rules, and simplifying procedures for company mergers are introduced to promote ease of doing business.

Key Schemes for the Common People

The Indian government’s budget for 2025-26 includes several schemes aimed at improving the lives of the common person, focusing on areas such as health, education, and financial well-being.

Healthcare

  • Day Care Cancer Centers: The government plans to establish Day Care Cancer Centers in all district hospitals over the next three years, with 200 centers to be set up in 2025-26. This will improve access to cancer treatment for people across the country.
  • Enhanced Nutritional Support: The Saksham Anganwadi and Poshan 2.0 program, which provides nutritional support to children and pregnant and lactating mothers, will have its cost norms enhanced. This will ensure that more people receive adequate nutrition.

Education and Skilling

  • Atal Tinkering Labs: 50,000 Atal Tinkering Labs will be established in government schools over the next five years. These labs will foster a spirit of curiosity and innovation among young students.
  • Broadband Connectivity: All government secondary schools and primary health centers in rural areas will be provided with broadband connectivity under the Bharatnet project. This will improve access to online education and healthcare services.
  • Bharatiya Bhasha Pustak Scheme: This scheme will provide digital Indian language books for school and higher education, helping students better understand their subjects.
  • National Centres of Excellence for Skilling: Five National Centres of Excellence for skilling will be set up with global partnerships to train youth for manufacturing.

Financial Assistance and Social Security

  • PM SVANidhi: The PM SVANidhi scheme, which benefits street vendors, will be revamped to provide enhanced loans from banks, UPI-linked credit cards, and capacity-building support.
  • Social Security for Online Platform Workers: Gig workers will receive identity cards and registration on the e-Shram portal, as well as healthcare under the PM Jan Arogya Yojana, assisting nearly 1 crore workers.
  • Credit Cards for Micro Enterprises: Customized credit cards with a limit of ₹5 lakh will be introduced for micro-enterprises registered on the Udyam portal. In the first year, 10 lakh such cards will be issued.
  • Scheme for First-time Entrepreneurs: A new scheme will provide term loans of up to ₹2 crore for 5 lakh women, Scheduled Castes, and Scheduled Tribes entrepreneurs over the next 5 years.
  • Enhanced Credit through KCC: The loan limit under the Modified Interest Subvention Scheme will be enhanced from ₹3 lakh to ₹5 lakh for loans taken through Kisan Credit Cards (KCC).

Housing

  • SWAMIH Fund 2: Building on the success of the first SWAMIH fund, a second fund of ₹15,000 crore will be established to complete another 1 lakh stressed housing units.

Other Important Initiatives

  • Jal Jeevan Mission: The Jal Jeevan Mission will be extended until 2028 with an enhanced outlay to achieve 100% coverage of potable tap water connections. The focus will be on the quality of infrastructure and operation and maintenance of rural piped water supply schemes.
  • Tourism for Employment-Led Growth: The top 50 tourist destinations will be developed, with measures taken to improve skill development, provide MUDRA loans for homestays, and streamline visa facilities.

Conclusion

The Budget 2025-26 introduces a range of tax reforms, offering significant relief to the middle class through revised income tax slabs and rebates, and providing various benefits for businesses and specific sectors. These reforms aim to stimulate economic growth, empower the middle class, and support various sectors. By understanding these changes and utilizing the available schemes, you can make informed decisions to benefit your finances and contribute to the nation’s growth.

Disclaimer: This blog post should not be considered financial advice. It is recommended to consult with a financial advisor for personalized guidance.