Income tax compliance for taxpayers: Budget 2025 has hiked the income tax basic exemption limit, introduced new income tax slabs under the new tax regime, no income tax on income up to Rs 12 lakh

5 Budget 2025 proposals that save tax and eases compliance burden The announcements made will help the taxpayers in easing their income tax compliance burdens. Know how these income tax proposals help taxpayers

Chander Talreja

Partner, Vialto Partners

Manavi Gupta

Manavi Gupta, Director, Vialto Partners

What a fantastic start to the month! The finance minister delighted the individual taxpayers, especially lower- and middle-class taxpayers and made the Budget Day -February 01, 2025, a special one. One of the most significant announcements made was regarding the introduction of a New Income Tax Bill in the coming week. This aims to bring significant tax reforms by reducing half of the current tax law which presently has 298 sections in total. These tax reforms would enable simplification and easy understanding for taxpayers and tax administration, leading to tax certainty and reduced litigation.

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The Budget proposals are aimed at providing significant relief and positivity to the taxpayers, being built on the principle of trusting taxpayers first and reviewing them later.

Let's take a closer look at the key announcements and its impact on an individual taxpayer:

I. Raising basic exemption limit to Rs 4 lakh
The basic exemption limit under the new tax regime is proposed to be raised from the current Rs 3 lakh to Rs 4 lakh. Hence, no tax liability if your taxable income is up to Rs 4 lakh per annum. Consequentially, here is more good news - if you opt for new tax regime, you will not need to file an income tax return if your taxable income is below this threshold and you do not meet any other criteria that mandates income tax return filing such as, deposits in current account(s) exceeding Rs 1 crore, travel expenses to foreign countries exceeding Rs 2 lakh, or expense on consumption of electricity exceeding Rs 1 lakh etc.

II. Raising income level to Rs 12 lakh for full tax rebate
The income threshold for claiming full tax rebate under new tax regime is proposed to be raised from the current limit of Rs 7 lakh to Rs 12 lakh. This means that if you are a resident taxpayer, you will enjoy zero tax liability for an income level of up to Rs 12 lakh. However, incomes taxed at special rates, such as capital gains etc, will be excluded when calculating the said income threshold. Also, please note that you will need to file an income tax return to avail this tax rebate.

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III. New income tax slabs under new tax regime
The current 6 tax slabs are proposed to be expanded to 7, with the introduction of an additional 25% tax bracket and revision of each slab limits under new tax regime. The 7 tax slabs proposed are as follows:

₹0 - ₹4,00,000	0%
₹4,00,001 - ₹8,00,000	5%
₹8,00,001 - ₹12,00,000	10%
₹12,00,001 - ₹16,00,000	15%
₹16,00,001 - ₹20,00,000	20%
₹20,00,001 - ₹24,00,000	25%
₹24,00,001 and above	30%

Although no changes are proposed to the rates of surcharge and cess, the table below highlights the amount of resultant tax savings:

Taxable income	*Tax liability under New tax regime**		Difference
Taxable income	Existing	Proposed	Difference
(₹)
1,200,000	83,200	-	83,200
1,800,000	239,200	166,400	72,800
2,400,000	426,400	312,000	114,400

*Including surcharge and cess

IV. Updated return deadline extended
You have an option to file an updated tax return in case you missed filing a revised return or belated return. The current time limit to file the updated tax return of 3 years from the end of the relevant financial year (FY) is proposed to be extended to 5 years, giving you an additional 2 years.

However, be careful that each additional year comes with a levy of additional taxes at 60% or 70%, depending upon when you file the updated return. The below table will help you understand this better:

Up to 2 years	25%	25%
Up to 3 years	50%	50%
Up to 4 years	Not Applicable	60%
Up to 5 years	Not Applicable	70%

*Levied on aggregate of tax and penal interest

V. Limit on TCS levy on foreign remittance hiked to Rs 10 lakh
The existing threshold for levy of TCS @ 20% on remittances under the Liberalised Remittance Scheme (LRS) of Rs 7 lakh per annum is proposed to be increased to Rs 10 lakh per annum. This will allow you to make higher remittances without a levy of TCS. Further, the Budget also proposed the removal of TCS on remittances for education purposes where the funding is done through a loan taken from a specified institution only.

These Budget proposals once again demonstrate a strong commitment to achieving good governance for both the people and the economy.

In fact, the new tax bill announcement has created a lot of buzz and added to the excitement of taxpayers, who now eagerly await the era of a new tax law to begin.

(Views are personal. Authored by Chander Talreja, Partner, Vialto Partners.Supported by Manavi Gupta, Director, Vialto Partners.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

This story originally appeared on: India Times - Author:Faqs of Insurances