On February 1, 2025, the Finance Minister of India, Ms. Nirmala Sitharaman presented the budget for the year 2025-26 before the Parliament. As a process, the Finance Bill is required to be approved by both the houses of Parliament and it stands enacted only after receiving the Presidential assent and publishing the same in the Official Gazette as the Finance Act. The Finance Minister also announced that a new income-tax bill will be introduced next week which is proposed to replace the existing Income-tax Act, 1961 (the Act). New Bill will be simpler and easier to understand for taxpayers and tax administration and aims to provide certainty and reduce litigation.
The tax proposals listed below are applicable for Financial Year (FY) 2025-26 corresponding to Assessment Year (AY) 2026-27, unless specified otherwise.
Direct Tax (Income Tax)
Tax Rates
Individuals:
- Indian Income-tax Act (the Act) provides two tax regimes for taxation of individuals – one provides for concessional slabs / rates without allowing certain exemptions /deductions (tax regime without deductions) which is a default tax regime and the other has higher tax rates, but it allows number of deductions (tax regime with deductions). The taxpayer has the option to choose the tax regime with deductions by filing an applicable form with the income tax department.
The Budget proposes to change the income slabs applicable to the default tax regime (i.e., regime without deductions) as under:
| FY 2025-26 | FY 2024-25 | ||
| Annual Taxable Income (In INR) | Income Tax Rate | Annual Taxable Income (In INR) | Income Tax Rate |
| Up to 400,000 | Nil | Up to 300,000 | Nil |
| From 400,001 to 800,000 | 5% | From 300,001 to 700,000 | 5% |
| From 800,001 to 1,200,000 | 10% | From 700,001 to 1,000,000 | 10% |
| From 1,200,001 to 1,600,000 | 15% | From 1,000,001 to 1,200,000 | 15% |
| From 1,600,001 to Rs 2,000,000 | 20% | From 1,200,001 to 1,500,000 | 20% |
| From 2,000,001 to 2,400,000 | 25% | Above 1,500,000 | 30% |
| Above 2,400,000 | 30% | ||
However, in case of tax regime with deductions, tax rates and income slabs continue to remain unchanged since FY 2022-23 which are as follows:
For individuals below the age of 60 years:
| FY 2025-26, FY 2024-25 and FY 2023-24 | |
| Annual Taxable Income (In INR) | Income Tax Rate |
| Up to 250,000 | Nil |
| 250,001 to 500,000 | 5% |
| 500,001 to 1,000,000 | 20% |
| Above 1,000,000 | 30% |
- Further the Act provides a tax rebate whereby the taxpayer is not required to pay tax if his taxable income is below INR 500,000 (for tax regime with deductions) or INR 700,000 (for tax regime without deduction). This provision remains unchanged for taxable income calculated under old tax regime (i.e., tax regime with deductions). However, in case of tax regime without deduction, it is proposed that no tax would be payable for the FY 2025-26 if the taxpayer’s income does not exceed INR 1,200,000, i.e., increased from Rs.700,000.
- The surcharge rates remain unchanged. The tax computed as above is to be further increased by surcharge at rates mentioned below and a health and education cess @ 4%:
- Income (all kinds of income) exceeding INR 5 million but not exceeding INR 10 million – 10%
- Income (all kinds of income) exceeding INR 10 million but not exceeding INR 20 million – 15%
- Income (excluding income from dividend and specified capital gains) exceeding INR 20 million but not exceeding INR 50 million – 25%
- Income (excluding income from dividends and specified capital gains) exceeding INR 50 million – 37%. Where the taxpayer is under the tax regime without deductions, the surcharge applicable will be restricted to 25%.
- In case of the last two situations mentioned above, surcharge at 15% is applicable on income from specified capital gains and dividend.
Illustrations of tax liability calculated at different income levels and under different options are given in Annexure A.
Companies:
- There is no change in corporate income tax rates (CIT) for Indian Companies as well as foreign companies. The CIT rate for foreign companies continue to be at 35% and for Indian companies it continues to be applicable as under:
| Category/ Condition for FY 2025-26 (Same as FY 2024-25 & FY 2023-24) | Income Tax Rate (Excluding surcharge and cess) |
| Domestic manufacturing companies incorporated on or after October 1, 2019, and which commenced manufacturing on or before March 31, 2024, and have opted for special/ optional tax regime | 15% |
| Companies opting for special/ optional tax regime where exemptions/deductions cannot be claimed | 22% |
| Company with total turnover or gross receipt in the FY 2023-24 not exceeding INR 4 billion | 25% |
| Any other domestic company | 30% |
- The above CIT is further increased by a surcharge at rates mentioned below and a health and education cess @ 4% which remain unchanged from the previous year rates:
- Companies with taxable income exceeding INR 10 million but up to INR 100 million – 7%
- Companies with taxable income exceeding INR 100 million – 12%
- Companies opting for special / optional tax regime (i.e., companies subject to tax rate of 15% or 22% as above) – 10%.
- The surcharge rates for companies other than domestic companies remain unchanged from previous year rates:
- Companies with taxable income exceeding INR 10 million but up to INR 100 million – 2%
- Companies with taxable income exceeding INR 100 million – 5%
Other key direct tax proposals
- The existing tax benefit for eligible start-ups allows a 100% deduction on profits for 3 consecutive years within the 10 years of incorporation. To qualify, the start-up must have a turnover not exceeding INR 100 crore, hold a certification from the Inter-Ministerial Board, and be incorporated between April 1, 2016, and April 1, 2025. The proposed amendment extends this benefit by 5 years, making it available to start-ups incorporated until April 1, 2030. This change will take effect from April 1, 2025.
- Various provisions in the Income-tax Act require the payer of income to withhold or deduct taxes at source (TDS) when such income crosses the threshold provided under the respective provision. The budget proposes to revise these thresholds across various categories to streamline the compliance. The updated limits effective from April 1, 2025, for the relevant category of income are as follows:
| Sr. No. | Section | Current threshold (in INR) | Proposed threshold (in INR) |
| 1 | 193 – Interest on securities | Nil | INR 10,000 |
| 2 | 194A – Interest other than Interest on securities | INR 50,000 for senior citizenINR 40,000 in case when payer is bank, co-operative society, and post office. INR 5,000 in other cases. | INR 100,000 for senior citizen INR 50,000 in case when payer is bank, co-operative society, and post office. INR 10,000 in other cases. |
| 3 | 194 – Dividend paid to an individual shareholder | INR 5,000 | INR 10,000 |
| 4 | 194H – Commission or brokerage | INR 15,000 | INR 20,000 |
| 5 | 194-I Rent | INR 2,40,000 during the financial year | INR 50,000 per month or part of month |
| 6 | 194J – Fee for professional or technical services or royalty | INR 30,000 | INR 50,000 |
- It is proposed to remove the requirement of tax collection at source by the seller who receives consideration for sale of goods from a buyer where the aggregate consideration during the year exceeds INR 5 million (TCS requirement was subject to certain conditions). This proposal is aimed at promoting the ease of doing business. The amendment is effective from April 1, 2025.
- Higher rate of tax deduction (withholding) or collection at source is applicable in cases of deductee or collectees who are non-filer of the tax return. This provision is proposed to be repealed from April 1, 2025.
- In 2022, the filing of updated return facility was introduced, which is irrespective of filing of original/ belated/ revised return, for encouraging voluntary compliance by the taxpayers in respect of reporting omitted/ incorrect income. As per the present provisions, an updated return can be filed up to 24 months from the end of the relevant assessment year along with payment of additional income-tax in the range of 25-50% (based on the period of delay) of aggregate of tax and interest payable for the updated return. It is proposed to extend the time-limit to file updated return for any assessment year, up to 48 months from the end of the relevant assessment year along with additional tax up to 70% (based on the period of delay). The amendment will take effect from the April 1, 2025, i.e., from AY 2025-26.
- It is proposed to extend the tax deduction up to INR 50,000 available to the National Pension Scheme (NPS) to the contributions made to the NPS Vatsalya accounts, as applicable. The NPS Vatsalya Scheme launched in 2024, enables parents/ guardians to start a NPS account for their children, which gets transferred to the child’s name with the accumulated corpus on becoming major.
- Presently individual taxpayers can claim the annual value of two self-occupied properties as nil only on the fulfilment of certain conditions viz. taxpayer used it for own residence or not able to occupy the property due to employment, business or profession carried on at any other place, etc. It is proposed to allow the benefit of considering annual value as Nil for two such self-occupied properties without any conditions.
International tax
- Non-resident taxpayers and foreign companies are taxable in India under the Income-tax Act if the income is deemed to accrue in India. If the non-resident has a significant economic presence in India, it will constitute a business connection resulting in income being considered as deemed to accrue in India. It is proposed that where non-resident’s operations are restricted to purchase of goods in India for the purpose of export, then such operations would not constitute significant economic presence in India.
- Budget proposes that the arm’s length price (ALP) determination under the transfer pricing provisions for the year is to be made applicable for the subsequent 2 years at the option of the taxpayers. The taxpayer would need to exercise the option in the form and manner provided in this respect.
- The budget also proposes to expand the scope of the safe harbour rules for transfer pricing to provide certainty and reduce litigation. Where the taxpayer’s transaction price meets the safe harbour prescribed, no transfer pricing audit to determine the arm’s length price will be conducted by the tax authorities.
Indirect Taxes
Customs:
Rationalisation of Customs Tariff Structure for Industrial Goods:
As a part of comprehensive review of Customs rate structure announced in July 2024 Budget, the Finance Minister proposed the following changes:
- Removal of tariff rates: It is proposed to remove 7 tariff rates which is over and above the 7 tariff rates removed in the Budget 2023-24. After this, there will be only 8 remaining tariff rates including ‘zero’ rate.
- Levy of either cess or surcharge: It is proposed to exempt social welfare surcharge on 82 tariff items, on which cess applies.
No Basic Customs Duty (BCD) on certain life-saving drugs/medicines:
In order to provide relief to patients, particularly those suffering from cancer, rare diseases, and other severe chronic diseases, it is proposed to exempt 36 lifesaving drugs and medicines from Basic Customs Duty (BCD). Further, additional 6 lifesaving medicines will be subject to concessional customs duty of 5%.
Basic Customs Duty (BCD) changes for IT and Electronic sector:
Following changes are proposed:
- To reduce the Basic Customs Duty (BCD) to 5% on Open Cell and other components.
- To increase BCD on interactive flat panel display (IFPD) module from 10% to 20%.
- In the Budget 2023 -24, BCD on the parts required for the manufacture of open cells for LCD/LED TVs was reduced from 5% to 2.5%, which is now proposed to be exempted to further boost the manufacturing of such open cells.
- Similarly, BCD on parts used in camera module and connectors of cellular mobile phones as also inputs and raw materials for use in the manufacture of specified parts of cellular mobile phones are proposed to be exempted.
- BCD on certain capital goods used in manufacture of lithium-ion batteries for Electric Vehicles (EVs) and mobile phones is now exempted.
© Shan & Co 2025
Annexure A.
Computation of tax liability at different levels of income under different tax regimes:
| Income (INR 1 million) | Income ( INR 1.275 million) | Income ( INR 1.5 million) | Income (INR 15 million) | Income (INR 25 million) | ||
| Assumptions/ Allowable deductions | ||||||
| Gross total income (Note 1) | 1,000,000 | 1,275,000 | 1,500,000 | 15,000,000 | 25,000,000 | |
| Allowable standard deduction (for tax regime with deduction) | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | |
| Allowable standard deduction (for tax regime without deduction) | 75,000 | 75,000 | 75,000 | 75,000 | 75,000 | |
| Professional tax or tax on employment | 2,500 | 2,500 | 2,500 | 2,500 | 2,500 | |
| Other deductions (Note 2) | 350,000 | 350,000 | 350,000 | 350,000 | 350,000 | |
| (i) | Tax Regime with deductions (for FY 2024-25 and FY 2025-26) | |||||
| Taxable income | 597,500 | 872,500 | 1,097,500 | 14,597,500 | 24,597,500 | |
| Tax payable | 32,000 | 87,000 | 141,750 | 4,191,750 | 7,191,750 | |
| Surcharge | – | – | – | 628,763 | 1,797,938 | |
| Cess | 1,280 | 3,480 | 5,670 | 192,820 | 359,587 | |
| Total liability | 33,280 | 90,480 | 147,420 | 5,013,333 | 9,349,275 | |
| (ii) | Tax Regime without deduction from FY 2025-26 (Default Regime) | |||||
| Taxable income (Standard deduction of INR 75,000 available) | 925,000 | 1,200,000 | 1,425,000 | 14,925,000 | 24,925,000 | |
| Tax payable | 32,500 | 60,000 | 93,750 | 4,057,500 | 7,057,500 | |
| Less Rebate u/s 87A | 32,500 | 60,000 | 0 | 0 | 0 | |
| Tax payable after rebate u/s 87A | 0 | 0 | 93,750 | 4,057,500 | 7,057,500 | |
| Surcharge | 0 | 0 | 0 | 608,625 | 1,764,375 | |
| Cess | 0 | 0 | 3,750 | 186,645 | 352,875 | |
| Total liability | 0 | 0 | 97,500 | 4,852,770 | 9,174,750 | |
| (iii) | Tax Regime without deduction for FY 2024-25 (Default Regime) | |||||
| Taxable income (Standard deduction of INR 75,000 available) | 925,000 | 1,200,000 | 1,425,000 | 14,925,000 | 24,925,000 | |
| Tax payable | 42,500 | 80,000 | 125,000 | 4,167,500 | 7,167,500 | |
| Surcharge | 0 | 0 | 0 | 625,125 | 1,791,875 | |
| Cess | 1,700 | 3,200 | 5,000 | 191,705 | 358,375 | |
| Total liability | 44,200 | 83,200 | 130,000 | 4,984,330 | 9,317,750 | |
| Final tax liability under beneficial tax regime at given income level | ||||||
| Income (INR 1 million) | Income ( INR 1.275 million) | Income ( INR 1.5 million) | Income (INR 15 million) | Income (INR 25 million) | ||
| FY 2025-26 [lower of tax liability as per (i) or (ii)] | – | – | 97,500 | 4,852,770 | 9,174,750 | |
| FY 2024-25 [lower of tax liability as per (i) or (iii)] | 33,280 | 83,200 | 130,000 | 4,984,330 | 9,317,750 | |
| Savings/ (Additional outgo) in FY 25-26 as compared with FY 24-25 | 33,280 | 83,200 | 32,500 | 131,560 | 143,000 | |
Notes/ assumptions:
- Gross income includes salary which is assumed to be more than INR 75,000. Income presumed to not include dividends and capital gains.
- Other deductions assumed for calculation are deduction u/s 80C (Provident fund, life insurance premium, etc) of INR 150,000 and interest on housing loan for self-occupied house of INR 200,000.
- Calculation is for a person below the age of 60 years