Budget 2025: Tax Reforms, Major Announcements, & Revised Sections

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Budget 2025

On February 1st, 2025, Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26 under PM Narendra Modi, marking his third consecutive term in power.

Following the previous budget passed on July 2024, this budget outlines a bold economic vision, with Agriculture, MSMEs, Investment, and Exports as the primary drivers of growth and steering India towards a resilient and prosperous future.

The key highlight of this budget is tax reforms that are highly anticipated by the middle class of India.

Direct Taxation for Individuals

In the new tax regime, the revised tax rate structure is as follows:

Total Income per annum Rate of Tax
₹ 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%
  • Income Tax Exemption: Individuals earning up to ₹12 lakh per annum will be exempt from income tax, excluding special income(Such as capital gains).
  • Under the new tax regime, salaried employees with earnings up to ₹12.75 lakh will not pay income tax due to the standard deduction of Rs 75,000.
  • The tax rebate under Section 87A will not be available for income that attracts special rates, such as capital gains, lotteries, and horse race winnings.
  • The tax Filing Window extended its deadline for filing tax returns to four years, up from the previous two-year limit.

Capital Gains Taxation

Changes in capital gain tax rate include as follows:

Capital Gains Type Details
Short-Term Capital Gains (STCG) Tax rate increased from 15% to 20% for certain financial assets.

 

Long-Term Capital Gains (LTCG) A flat tax rate of 12.5% is applied to long-term capital gains across all asset classes.

Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) Rationalization

  • The TDS limit on interest for senior citizens has been doubled from ₹50,000 to ₹1 lakh.
  • The annual TDS limit has been increased from ₹2.4 lakh to ₹6 lakh on rent.
  • The budget has removed higher TDS rates for non–filters.
  • TCS on the purchase of goods is now removed, effective from April 1, 2025
  • Changes in Sections 194, 194H, 194J, and 194D under the Union Budget 2025-26:
Section Current Provision Proposed Change (Budget 2025-26)
Section 194 (Dividend) TDS at 10% on dividend payments exceeding ₹5,000 Threshold increased to ₹10,000 per financial year
Section 194H (Commission or Brokerage) TDS at 2% on commission/ brokerage exceeding ₹15,000 Threshold increased to ₹20,000 per financial year
Section 194J (Fees for Professional or Technical Services) TDS at 10% on fees exceeding ₹30,000 Threshold increased to ₹50,000 per financial year
Section 194D (Insurance Commission) TDS at 5% on insurance commission exceeding ₹15,000 Threshold increased to ₹20,000 per financial year

These changes are aimed at reducing the compliance burden by raising the threshold limits for TDS applicability.

NSS withdrawals made on or after August 29, 2024, are now exempt from tax.

Indirect Tax – Custom Duty 

The Union Budget 2025-26 introduces significant changes under Basic Customs Duty (BCD) to

Category New BCD Rate Previous BCD Rate
LED/LCD TV Components 5% Higher than 5%
Carrier-Grade Ethernet Switches 10% 20%
Critical Minerals (Cobalt, Lithium, Lead, Zinc, etc.) 0% (Fully Exempt) Higher than 0% (Previously taxable)
Interactive Flat Panel Displays 20% 10%
Knitted Fabrics ₹115 per kg or 20%, whichever is higher Previous rate or lower than ₹115/kg
Lifesaving Drugs & Medicines Fully Exempt (for cancer, rare diseases, chronic conditions) Previously taxable
EV Critical minerals used for manufacturing EV batteries such as lithium, cobalt and nickel will exempted from paying custom duty Previously taxable
Shipbuilding & Shipbreaking 35 capital goods for EV battery production exempted from customs duty to boost local manufacturing. Previously limited timeframe for exemption

Changes in GST

Category Previous Provision Revised Provision (Budget 2025-26) Impact
Input Tax Credit (ITC) by Input Service Distributors (ISD) ISDs could not distribute ITC related to inter-state supplies under Reverse Charge Mechanism (RCM). ISDs can now distribute ITC for inter-state supplies under RCM. Eases compliance and reduces tax disputes for service-based businesses.
Unique Identification Marking (Track and Trace Mechanism) No specific provision for tracking goods under GST. Introduction of Unique Identification Marking to track goods in the supply chain. Enhances tax transparency and prevents evasion.
Reversal of ITC on Credit Notes No clear mechanism for ITC reversal when credit notes are issued. ITC reversal is mandatory when credit notes are issued and availed. Aligns ITC claims with actual transactions, reducing discrepancies.
GST Compliance Framework (Return Filing Restrictions) No specific restrictions on return filing. Government can now prescribe conditions and restrictions for GST return filing. Strengthens compliance and reduces tax fraud.
Time of Supply Time of supply for services was based on the earlier of invoice date or payment date. Time of supply for services is now clarified for certain sectors (e.g., continuous supply of services). Provides clarity and reduces disputes regarding the timing of GST liability.
GST Refunds Refund claims could take up to 6 months. Refunds will now be processed within 30 days for certain categories. Speeds up the refund process, improving cash flow for businesses.
GST on E-commerce E-commerce operators were required to pay tax on behalf of sellers. Clarification on e-commerce operators’ liability to pay tax on behalf of suppliers, especially in the case of certain types of goods and services. Improves compliance for online businesses and ensures proper tax collection.
Tax on Digital Services Digital services were taxed under the same general provisions. Special provisions for taxing digital services provided by non-residents. Ensures proper taxation of foreign digital service providers.
Composition Scheme Composition scheme was available only for manufacturers, traders, and restaurants. Expanded to include service providers with turnover up to ₹50 lakhs. Encourages more businesses to join the GST system, benefiting small service providers.
GST on Real Estate Real estate developers paid GST on construction services. Input tax credit (ITC) will now be allowed on construction materials for developers. Reduces cost of construction and makes housing more affordable.
GST on Artificial Intelligence & Robotics No specific provisions for AI and robotics under GST. Introduction of GST exemptions for AI and robotics components for R&D purposes. Promotes innovation and development in high-tech industries.
GST on Luxury Goods Luxury goods were taxed at the highest GST rate. Introduction of a revised luxury goods tax structure with reduced rates for some items. Reduces the tax burden on luxury goods, encouraging their consumption.
GST on Financial Services Financial services were taxed at the standard GST rate. Special provisions for tax on certain financial services like insurance premiums and brokerage services. Clarifies the tax treatment of financial services and ensures fair taxation.

Corporate Tax

  • The corporate tax rate for foreign companies operating in India has been reduced from 40% to 35%.
  • The angel tax has been abolished, effective April 1, 2025, to encourage Startup-related investments.

Tax Benefits for NRI

  • NRIs engaged in cruise ship operations can now benefit from a simplified taxation framework under Section 44BBC. This framework allows them to declare their profits at a fixed rate of 20%.
  • The Equalisation Levy on revenue earned by NRIs: E-commerce operators will no longer be charged for transactions conducted on or after August 1, 2024.

Here are the key details about the non-resident and presumptive tax provisions included in the Union Budget for 2025-26.

Aspect Current Provision Proposed Change (Budget 2025-26)
Target Group Non-resident entities providing services or technology. Non-resident entities offering services or technology to resident electronics manufacturers.
Presumptive Taxation Regime No specific regime for non-residents in electronics sector. Section 44BBD introduces a presumptive taxation regime for non-residents in electronics manufacturing.
Deemed Profit N/A 25% of the total amount received or receivable for services is deemed as profits.
Effective Tax Rate Regular tax rates apply. Effective tax rate of less than 10% on gross receipts for non-residents.
Effective Date N/A April 1, 2026 (Assessment Year 2026-27 and beyond).
Liberalized Remittance Scheme (LRS) TCS at 5% for remittances over ₹7 lakh. TCS threshold raised to ₹10 lakh for remittances under LRS.

This new regime, which provides a simplified tax structure, is designed to attract foreign entities to invest and collaborate in India’s electronics manufacturing sector.

Transfer Pricing Reforms in the Union Budget 2025-26

Reform/Initiative Key Highlights
Block Assessment Mechanism Transfer pricing assessments for related-party transactions will be done for a block of (2+1) years, reducing annual paperwork.

Which will come into effect from April 1, 2025

Elective Option for Taxpayers Taxpayers can request a block assessment for 3 years, and Transfer Pricing Officer will decide on the request within a month.
Simplification Aims to reduce compliance burdens and administrative workload, offering more certainty to businesses on transfer pricing.
Alignment with International Practices The changes align India’s transfer pricing framework with global best practices, enhancing transparency and efficiency.
Deemed Arm’s Length Price (ALP) ·         Once ALP is determined for a financial year, it will apply to the next two consecutive financial years.

·         Exclusions are not applicable for block assessment for a specific year.

·         Taxpayers can opt for block assessment for a specific year.

·         Effective from Assessment Year 2025-26 onwards.

Changes in Section 9A under the Union Budget 2025-26

Category Key Changes
Rationalization of Conditions for Eligible Investment Funds Aggregate participation by persons resident in India not to exceed 5% of the fund’s corpus (now applicable to all eligible funds).
Relaxation for IFSC-Based Fund Managers  Relax certain conditions for fund managers in the IFSC that commence operations by March 31, 2030.
Implications for IFSC Expected to make the IFSC more attractive to global fund managers and boost fund management activities.
Simplified Compliance Reduction in compliance burdens for fund managers to promote smoother fund management operations.

Changes in Section 80CCA and 80CCD

Section Previous Provision Revised Provision (Budget 2025-26) Impact
Section 80CCA No significant recent changes. Specific amendments for tax benefits and eligibility outlined in the Finance Bill. Aims to enhance deductions for retirement savings, with further details in the Finance Bill.
Section 80CCD Tax benefits for regular NPS subscribers under Section 80CCD(1B). Extension of tax benefits to NPS Vatsalya scheme subscribers under Section 80CCD(1B). Promotes retirement savings for a broader range of taxpayers, encouraging participation in NPS Vatsalya.

Changes in Section 72A regarding Losses from Amalgamation of Companies

Section Previous Provision Revised Provision (Budget 2025-26) Impact
Section 72A – Carry Forward of Losses in Amalgamation Losses and unabsorbed depreciation of the predecessor entity could be carried forward and set off indefinitely by the successor company. losses  limited to a maximum of 8 assessment years will be forwarded to the following  year in which the loss was first computed. The successor company can carry forward losses from the predecessor company for up to 8 years in case of amalgamation after April 1, 2025, making the tax benefit more time-bound.
For Amalgamation Pre-April 1, 2025 No 8-year limitation. No change, previous provisions continue. Entities undergoing amalgamation before April 1, 2025 will continue to benefit from the previous, more lenient loss carry forward rules.

 Changes in Section 13(3)

Section Previous Provision Revised Provision (Budget 2025-26) Impact
Section 13(3) – Definition of Specified Persons A person contributing over ₹50,000 in a year, along with their relatives and concerns in which they hold substantial interest, were considered “specified persons.” Contribution threshold increased to ₹1 lakh in a financial year or ₹10 lakh cumulatively. Relatives and concerns are no longer considered “specified persons.” Reduces the scope of “specified persons,” simplifying compliance for trusts and institutions.

 Cancellation of Registration of Trusts or Institutions due to Incomplete Applications

Aspect Current Provision Proposed Change (Budget 2024-25)
Registration/Approval Process Trusts or institutions can apply for registration under sections 12AB and 80G. Registration/Approval process will be streamlined and subject to deadlines.
Incomplete Applications Incomplete applications may be delayed or rejected. Incomplete applications may result in the cancellation of provisional registration.
Consequences for Delay No clear timelines for processing and delays in approval. Timelines for processing standardised to six months from the end of the quarter in which the application is received.
Condonation of Delay Delay may be condoned by the Principal Commissioner. Principal Commissioner or Commissioner may condone delays if a reasonable cause is provided.
Effective Date N/A October 1, 2024

This change aims to improve the efficiency and accountability of the registration process for trusts and institutions by enforcing clearer timelines and consequences for incomplete applications.

Major Announcements for Different Sectors in India under Union Budget 2025-26

The Budget 2025 focuses on the following sectors to strengthen these industries and create a dynamic investment landscape to attract global investors. This will position India as a premier destination for economic opportunities and ease of doing business.

  1. Insurance Industry
    The government has announced an increase in the FDI limit for the insurance sector from 74% to 100%, applicable to those companies that invest the entire premium within India.
    It will eliminate the need for foreign investors to find Indian partners for the remaining 26%, which will lead them to ease doing business in India.
  1. Nuclear Energy Sector
    Proposes amendments to the Civil Liability for Nuclear Damage Act of 2010 and the Atomic Energy Act of 1962 in order to open the nuclear sector for both private and foreign investments in India. This initiative aims to facilitate international collaborations.
  1. Agriculture Sector
    This budget also focuses mainly on the agriculture sector, enabling various schemes and programs to boost agricultural productivity and the welfare of farmers in India.
    • PM Dhan-Dhaanya Krishi Yojana: This scheme will support 100 low-productive districts, mainly benefiting 1.7 crore farmers.
    • Mission for Aatmanirbharta in Pulses: The main focus is on Tur, Urad, and Masoor to reduce imports and ensure stable prices.
    • Horticulture Boost – A program to improve fruit & vegetable production,
    • To establish the Makhana Board in Bihar, which targets enhancing the production and marketing of Makhana (fox nuts).
    • High-Yielding Seeds Mission: in order to boost the productivity of crops, the budget focuses on the mission of providing good quality HYV to farmers and farming-related activities in India
    • Kisan Credit Card (KCC) Expansion: providing Loans up to ₹5 lakh for farmers, fishermen, and dairy farmers.These measures aim to modernize agriculture, support rural livelihoods, and drive self-reliance in food production.
  1. Health Care
Key Impact Areas Details
Pharmaceutical R&D Support Proposed re-introduction of weighted tax benefits for research and development (R&D) and also extension of lower tax rates under Section 115BAB to encourage innovation.
Healthcare Services & Insurance Suggested reduction of GST on health insurance premiums (currently 18%) and increased deduction limits under Section 80D to improve affordability.
Domestic Manufacturing Incentives Higher budget allocation for the Production Linked Incentive (PLI) scheme to boost local pharmaceutical and medical device manufacturing.
  1. EV (Electric Vehicles)
Scheme/Initiative Key Highlights
Reduction in Customs Duties Critical minerals used for manufacturing EV batteries such as lithium, cobalt and nickel will exempted from paying custom duty
Support for Domestic Manufacturing 35 capital goods for EV battery production exempted from customs duty to boost local manufacturing.

These measures aim to make EVs more affordable, boost domestic production, and support the growth of sustainable transportation in India, which will boost the EV sector towards the growing path in the technical field for India.

  1. MSME
    The MSME (Micro, Small, and Medium Enterprises) received significant focus in the Union Budget 2025-26, as the government aims to strengthen and expand this vital segment of the economy.

    For this, the National Manufacturing Mission was launched to boost MSME participation Under Make in India.

Key announcements for the MSME sector include:

Category Key Announcements
Revised MSME Classification Investment limits increased by 2.5 times, turnover limits doubled
Enhanced Credit Guarantee Scheme Credit guarantee cover increased from ₹5 crore to ₹10 crore
Customized Credit Cards for Micro Enterprises New credit cards with ₹5 lakh limit for micro enterprises registered on Udyam portal.
Support for First-Time Entrepreneurs Scheme to support 5 lakh first-time entrepreneurs (women, SC/ST), offering term loans up to ₹2 crore

Other Important Facts

  • The total receipts for Budget 2025 -25, other than borrowings and the total expenditure, are estimated at ₹34.96 lakh crore and ₹50.65 lakh crore, respectively. The net tax receipts are estimated at ₹28.37 lakh crore.
  • The fiscal deficit is targeted at 4.4% of GDP in 2025-26, which is lower than the revised estimate of 2024-25, i.e., 4.8% of GDP. This lower % is due to higher growth in receipts, i.e., 11.1%, as compared to expenditure growth at 7.4%
  • The budget proposes a 10–12% rise in capital expenditure to ₹12.3 lakh crore, focusing on infrastructure development to drive growth and generate employment.
  • The period of registration of smaller trusts or institutions increased to 10 years.
  • Startups incorporated on or before April 1, 2030. can get a 100% Tax deduction on profits for the first 3 consecutive years within a block of 7 years, effective from April 1, 2025
  • Proposal for New Section 285BAA introduced to mandate reporting of crypto asset transactions by reporting entities.
  • Under the Union Budget 2025-26, it was proposed that Section 271AAB (penalty for undisclosed income) will not apply in cases where a search is initiated under Section 132 (search and seizure) on or after September 1, 2024. This change aims to clarify that penalties related to undisclosed income won’t be imposed in situations where the block assessment provisions apply after the given date from September 1, 2024

Conclusion

The Union Budget 2025-26 reflects a bold vision for India’s economic future. It focuses on key sectors like agriculture, MSMEs, healthcare, and technology to drive growth and innovation, which are key factors for a developing country like India. Significant tax reforms and sector-specific development measures will reduce compliance burdens and enhance foreign opportunities, creating a dynamic and investor-friendly environment.

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