Union Budget Update: 1st February 2025

Key Changes Impacting Companies and Employees

The Union Budget 2025 has introduced several significant measures aimed at boosting economic growth, enhancing business operations, and improving employee welfare. Here’s an overview of the key changes applicable from 1^st April 2025, relevant to businesses and their employees.

Income Tax reforms under new tax regime:

Increased Basic Exemption Limit: The basic exemption limit has been raised from Rs 3 lakh to Rs 4 lakh for FY 2025-26, benefiting individual taxpayers by reducing their tax liabilities.

Tax-Free Income Threshold: Tax rebate under Section 87A applicable for total income up to Rs 12 lakh (Increased from previous amount of Rs 7 lakh), effectively resulting in zero tax for those earning within this range.

Standard Deduction: The standard deduction remains at Rs 75,000, allowing salaried individuals to effectively increase their tax-free income threshold.

Income Tax slabs:

Income Tax reforms under old tax regime:

There are no changes in tax slabs or deductions under the old tax regime.

Rationalization of tax deducted at source (TDS) threshold:

Key Changes in TCS

Increased TCS Exemption Limit: The exemption limit for TCS on remittances under the LRS has been raised from Rs 7 lakh to Rs 10 lakh. This adjustment allows individuals to remit larger amounts without incurring TCS.

Removal of TCS on Educational Loans: TCS will be removed for remittances related to education, provided these remittances are financed through loans from specified financial institutions. This change aims to ease the financial burden on students and their families, ensuring that more funds are available for educational purposes without being subjected to tax deductions.

Omission of TCS on Sale of Goods: The budget proposes to omit TCS under sub-section (1H) of section 206C on transactions related to the sale of goods. This move is intended to reduce compliance difficulties for businesses and streamline tax obligations.

Rationalization of tax collected at source (TCS) rates:

Section 80CCD: NPS Vatsalya scheme

The tax benefits available under Section 80CCD(1B) for contributions to the National Pension Scheme (NPS) will now also apply to contributions made to NPS Vatsalya account.

Individuals contributing to NPS Vatsalya accounts can claim an additional tax deduction of up to Rs 50,000, similar to regular NPS contributions. This is in addition to the existing limit of Rs 1.5 lakh under Section 80C, allowing a maximum total deduction of up to Rs 2 lakh per financial year.

This scheme is designed for parents to save for their children's future retirement needs, promoting early saving habits. By including NPS Vatsalya under Section 80CCD(1B), the government aims to make this scheme more attractive for parents, encouraging them to invest in their children's long-term financial security.

Tax Relief on Self-Occupied Properties

Tax Benefits for Two Properties: Taxpayers can now declare two properties as self-occupied, exempting them from taxes on notional rental income.

Removal of Conditions: The new budget eliminates the conditions previously required to classify a property as self-occupied. Previously, homeowners had to meet specific criteria related to employment or business location to claim two properties as self-occupied. Now, any two properties can be designated as such without any conditions, simplifying compliance for property owners.

These changes will positively impact both companies and their employees, offering tax relief and improving disposable income, which could enhance overall consumption and employee satisfaction. The new tax regime will now be more advantageous for salaried employees.

Income Tax Code Bill: It has been announced that the Income Tax Code Bill will be presented separately in the upcoming week. The exact details of the bill will be revealed once it is introduced, but it aims to streamline the current tax system, with a focus on simplifying procedures and enhancing compliance.

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