Income Tax Rules Changing from April 1, 2025: Full Breakdown of New Slabs, 87A Rebate, and TDS Changes
New income tax rules will come into effect from April 1, 2025. Check updates on tax slabs, rebates, TDS/TCS limits, return filing deadlines, and new benefits for start-ups and IFSC units
Starting April 1, 2025, several key changes in income tax rules will come into effect, impacting salaried individuals, senior citizens, professionals, freelancers, investors, and commission earners. These amendments, introduced in the Union Budget 2025, are aimed at rationalizing the tax structure, simplifying compliance, and reducing the burden on small taxpayers. This article provides...
Starting April 1, 2025, several key changes in income tax rules will come into effect, impacting salaried individuals, senior citizens, professionals, freelancers, investors, and commission earners. These amendments, introduced in the Union Budget 2025, are aimed at rationalizing the tax structure, simplifying compliance, and reducing the burden on small taxpayers.
This article provides a comprehensive overview of all income tax changes applicable for the financial year 2025–26 (assessment year 2026–27), including revised income tax slabs, changes in Section 87A rebate, updated TDS, TCS thresholds, Tax regime preferences, and other relevant modifications
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1. New Income Tax Slabs under the New Regime (FY 2025–26)
From April 1, 2025, the new income tax regime will be the default option. Taxpayers who wish to continue using the old regime (which allows various deductions) must opt in explicitly each financial year.
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Revised Slab Rates under the New Regime
| Annual Income Range | Tax Rate (%) |
| Up to Rs. 3,00,000 | 0% |
| Rs. 3,00,001 – Rs. 7,00,000 | 5% above ₹ 3,00,000 |
| Rs. 7,00,001 – Rs. 10,00,000 | ₹ 20,000 + 10% above ₹ 7,00,000 |
| Rs. 10,00,001 – Rs. 12,00,000 | ₹ 50,000 + 15% above ₹ 10,00,000 |
| Rs. 12,00,001 – Rs. 15,00,000 | ₹ 80,000 + 20% above ₹ 12,00,000 |
| Above Rs. 15,00,000 | ₹ 1,40,000 + 30% above ₹ 15,00,000 |
Key Changes:
- The basic exemption limit has been increased to Rs. 3 lakhs.
- The Budget 2024 announcement also featured some additional good news for salaried individuals in the form of an increase in the standard deduction to Rs. 75,000 for AY 2025-26. Till AY 2024-25, standard deduction was fixed at Rs. 50,000.
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2. Enhanced Section 87A Rebate (Only under New Regime)
The Section 87A rebate provides relief to individuals with lower income by reducing or eliminating tax liability.
Updated 87A Rebate Rules (FY 2025–26):
| Particulars | Before April 1, 2025 | After April 1, 2025 |
| Maximum Eligible Income for Rebate | Rs. 7,00,000 | Rs. 7,50,000 |
| Maximum Rebate Amount | Rs. 25,000 | Rs. 25,000 |
| Applicable Tax Regime | New Regime only | New Regime only |
Effect: No tax payable if total income is up to Rs. 7.5 lakh under the new regime after applying the standard deduction.
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3. Major TDS (Tax Deducted at Source) Changes from April 1, 2025
Several threshold limits for TDS have been revised to reduce the burden on small taxpayers and improve liquidity.
Summary of TDS Changes:
| Income Type | Existing Threshold | New Threshold (from April 1, 2025) |
| Interest (Senior Citizens) | Rs. 50,000 | Rs. 1,00,000 |
| Interest (Others) | Rs. 40,000 | Rs. 50,000 |
| Dividend (Mutual Funds & Stocks) | Rs. 5,000 | Rs. 10,000 |
| Commission (Insurance/Brokers) | Rs. 15,000 | Rs. 20,000 |
| Gaming Winnings | Aggregated winnings | Only if annual winnings > Rs. 10,000 |
| Property Sale (TDS u/s 194-IA) | Rs. 50,00,000 | Rs. 75,00,000 |
a. Interest Income (Section 194A): Senior citizens will not face TDS unless annual interest income exceeds Rs. 1 lakh. For other individuals, the TDS threshold is raised from Rs. 40,000 to Rs. 50,000.
b. Dividend Income: TDS will apply only if total dividend income exceeds Rs. 10,000 in a financial year. Applicable on both equity and mutual fund dividends.
c. Commission Income (Section 194D/194H): TDS will be deducted only if total commission or brokerage income exceeds Rs. 20,000 in a year.
d. Online Gaming Winnings (Section 194BA): TDS will be deducted only if total winnings exceed Rs. 10,000 per financial year. Previously, TDS applied on aggregated transactions across the year.
e. Property Transactions: For sale/purchase of immovable property, TDS at 1% under Section 194-IA will now apply only for transactions exceeding Rs. 75 lakh (earlier Rs. 50 lakh).
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4. Tax Collected at Source (TCS) – Key Changes from April 1, 2025
Alongside the updates to the TDS framework, the government has also revised certain TCS thresholds and rates, particularly affecting high-value transactions and international spending.
Summary of TCS Changes:
| Transaction Type | Existing TCS Rate | New TCS Rate (from April 1, 2025) | Threshold for Applicability |
| Foreign Remittances under LRS (except for education/medical) | 20% | 15% | Above Rs. 7 lakh per financial year |
| Foreign Travel Packages (Tour Operators) | 20% | 15% | No threshold |
| Education/Medical Expenses Abroad | 5% | 5% | Above Rs. 7 lakh |
| Sale of Overseas Tour Package | 5% | 5% | Any amount |
| Sale of Goods (by sellers > Rs. 10 Cr turnover) | 0.1% | 0.1% | Sales exceeding Rs. 50 lakh per buyer |
a. Foreign Remittances under Liberalised Remittance Scheme (LRS): TCS rate reduced from 20% to 15% for non-educational and non-medical foreign remittances, such as investing abroad, buying property, or overseas deposits. It applies only if total remittance exceeds Rs. 7 lakh in a financial year. Remittances for education and medical treatment continue to attract 5% TCS beyond Rs. 7 lakh.
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b. International Tour Packages: TCS for tour operators selling overseas travel packages has been reduced from 20% to 15%, providing relief to outbound travellers. No threshold; TCS applies from the first rupee of booking amount.
c. Sale of Goods (Section 206C(1H)): TCS at 0.1% continues to apply on the sale of goods (excluding exports) if the seller’s turnover exceeded Rs. 10 crore in the previous year or the value of goods sold to a single buyer exceeds Rs. 50 lakh
5. Extended Deadline for Filing Updated Income Tax Returns (ITR-U)
Taxpayers now have more time to rectify omissions or file missed returns.
| Particular | Earlier Rule | New Rule (Apr 2025) |
| Time to file Updated ITR (ITR-U) | 12 months | 48 months (4 years) |
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6. Incentives for IFSC (International Financial Services Centres)
To boost offshore financial activity in India, the following IFSC benefits have been announced:
- The deadline for commencing operations to claim tax benefits has been extended to March 31, 2030.
- Life insurance policies issued by IFSC units to non-residents will now enjoy full tax exemption under Section 10(10D), regardless of premium size.
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7. Start-Up Tax Exemptions – Extended Window
Start-ups now have until March 2030 to register and avail tax exemptions under Section 80-IAC.
| Condition | Earlier Deadline | Revised Deadline |
| Start-up incorporation deadline | March 31, 2024 | March 31, 2030 |
| 100% tax deduction eligibility | 3 out of 10 years | Unchanged |
| Conditions | DPIIT-recognized, < Rs. 100 Cr turnover | Same |
8. Remuneration Deduction for Partners – Clarity on Limits
Limits for partner remuneration deduction have been clarified based on book profit:
| Book Profit (Rs. ) | Max Deduction |
| Up to Rs. 6,00,000 | Rs. 3,00,000 or 90% of book profit (whichever is higher) |
| Above Rs. 6,00,000 | 60% of book profit |
9. Taxation of ULIPs – Gains Treated as Capital Gains
Gains from Unit Linked Insurance Plans (ULIPs) will be taxed as capital gains if:
- Premium exceeds Rs. 2.5 lakh annually, or
- Premium is more than 10% of the sum assured.
Such ULIPs will no longer qualify for full exemption under Section 10(10D).
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10. Deemed Rent on House Properties – Relaxed Rules
Previously, taxpayers could claim only one property as self-occupied without being taxed on deemed rent. This rule has now been simplified.
New Provision (Effective April 2025):
- Up to two house properties can now be claimed as self-occupied.
- Their annual value will be considered NIL, without any conditions, such as job relocation.
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