Finance Bill 2025 – New Tax Regime, TDS & TCS Updates, and More

“Finance Bill 2025: Game-Changing Tax Updates Every Taxpayer Must Know!”

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The Finance Bill 2025 introduces important updates in personal taxation, particularly for individuals opting for the new tax regime. Here’s a breakdown of the key changes:

Revised Tax Structure Under Section 115BAC

• Income up to ₹4,00,000 remains tax-free.
• Tax rates range from 5% to 30% for higher income brackets:
  • ₹4,00,001 to ₹8,00,000 – 5%
  • ₹8,00,001 to ₹12,00,000 – 10%
  • ₹12,00,001 to ₹16,00,000 – 15%
  • ₹16,00,001 to ₹20,00,000 – 20%
  • ₹20,00,001 to ₹24,00,000 – 25%
  • Above ₹24,00,000 – 30%
• The tax rebate under Section 87A now applies to incomes up to ₹12,00,000, with a maximum rebate of ₹60,000.
• This rebate is not applicable to incomes taxed at special rates, such as capital gains under Sections 111A and 112.
• No changes have been made to the old tax regime, surcharge, or education cess.

TDS and TCS Updates

• The TDS rate under Section 194LBC on income from securitisation trusts is reduced from 25%/30% to 10%.
• Threshold limits for tax deduction under multiple sections have been increased for ease of compliance:
  • Section 193 (Interest on securities) – Increased from Nil to ₹10,000.
  • Section 194 (Dividend income) – Increased from ₹5,000 to ₹10,000.
  • Section 194A (Interest other than securities) – Raised to ₹1,00,000 for senior citizens and ₹50,000 for others.
  • Section 194B (Lottery and gambling winnings) – Now applies per transaction instead of annually.
  • Section 194D, 194G, and 194H (Commission payments) – Threshold increased from ₹15,000 to ₹20,000.
  • Section 194-I (Rent payments) – Revised to ₹50,000 per month.
  • Section 194J (Royalty and professional fees) – Increased from ₹30,000 to ₹50,000.
  • Section 194K (Mutual fund income) – Increased from ₹5,000 to ₹10,000.
  • Section 194LA (Compensation for property acquisition) – Increased from ₹2,50,000 to ₹5,00,000.
• TCS on goods sales under Section 206C(1H) is proposed to be withdrawn.
• Section 206AB and 206CCA, which mandated higher tax rates for non-filers, are proposed to be omitted.
• The definition of ‘Forrest Produce’ is clarified, aligning with state and national laws.
• TCS rates for timber and forest produce are reduced from 2.5% to 2%.
• The TCS threshold for foreign remittances under the Liberalised Remittance Scheme (LRS) is increased from ₹7 lakhs to ₹10 lakhs.
• No TCS will be collected on foreign education loans covered under Section 80E.

Changes for Salaried Individuals and House Property Income

• The perquisite threshold under Section 17(2) has been revised to align with economic conditions.
• Benefits for travel-related medical treatment abroad are expanded.
• The annual value of up to two self-occupied or vacant house properties will be considered nil, provided no rental income is received. This reduces the tax burden for homeowners.

Charitable & Religious Trusts

Extended Registration Period for Smaller Charitable Trusts

• Under Section 12AB, charitable trusts and institutions are granted registration for five years.
• Smaller trusts or institutions with total income before exemption not exceeding ₹5 crores in each of the two preceding years will now receive registration for ten years instead of five.
• This benefit is not available for first-time applicants, whether before or after commencing activities.

Rationalisation of ‘Specified Violation’ for Registration Cancellation

• Under Section 12AB(4), registration can be cancelled if certain violations occur.
• Previously, an incomplete application was considered a specified violation.
• The amendment clarifies that an incomplete application alone will not lead to cancellation.

Relaxation in Classification of Specified Persons

• Section 13(3) disallows exemption if income benefits a specified person.
• The definition of a substantial contributor is revised:
  • A person is a substantial contributor if their annual contribution exceeds ₹1 lakh or lifetime contributions exceed ₹10 lakhs.
  • Relatives of substantial contributors and concerns where they have a substantial interest are no longer classified as specified persons.

Transfer Pricing (TP) Rationalisation

• Current TP assessments are conducted yearly, creating repetitive compliance burdens.
• From AY 2026-27, TP analysis will cover a block of three years:
  • The financial year in question (first year) and two following years.
  • Assessees must opt in via a prescribed form.
  • The TPO must validate the option within one month.
  • The ALP of transactions in the first year will be applied to similar transactions in later years.
  • No reference to the TPO will be made for later years if the option is exercised.
  • This process does not apply to search cases.

International Financial Services Centre (IFSC) Updates

• The sunset date for IFSC tax concessions has been extended to March 31, 2030 under Sections 80LA, 10(4D), 10(4F), 10(4H), and 47(viiad).
• The premium cap for life insurance policies issued by IFSC-based insurers has been removed, ensuring tax exemption under Section 10(10D).
• Capital gains tax exemption under Section 10(4H) now applies to ship leasing businesses, expanding beyond aircraft leasing.
• Dividend income for IFSC-based ship leasing companies is exempt from tax under Section 10(34B).
• Deemed dividend provisions do not apply to borrowings by a corporate treasury centre in an IFSC from its group entities.
• Derivative contracts entered with Foreign Portfolio Investors (FPIs) in IFSCs are now exempt from tax under Section 10(4E).
• Retail funds and ETFs in IFSCs are now classified as specified funds for tax exemption.
• Foreign investment fund relocation to IFSC-based funds is tax-neutral under Section 47(vii ad).
• Eligible investment funds under Section 9A must meet participation conditions on April 1 and October 1 of the previous year, with a 4-month correction window.
• The deadline for IFSC fund manager operations is extended to March 31, 2030.

Conclusion

The Finance Bill 2025 brings significant tax reforms, ensuring ease of compliance and clarity for taxpayers while improving transparency in tax laws.