The new financial year brings a series of significant reforms to the Indian income tax landscape. With the enactment of the Finance Act, 2024, these changes aim to simplify tax compliance, encourage transparency, and improve administration. This master guide serves as your go-to reference for every major change taking effect from April 1, 2025.
Bookmark this article and revisit it throughout FY 2025-26 to stay updated and compliant.
Table of Contents
- New Income Tax Slab Rates for FY 2025-26
- TDS Thresholds Enhanced: Full List & Impact
- TCS Changes Under LRS & Education Loans
- Updated Return Filing Time Extended to 48 Months
- New Section 194-T: TDS on Partner Payments
- Revised Partner Remuneration Limits Explained
- Form 26Q & 27Q Updated: What’s New
- Tax Implications for Salaried Individuals
- What Business Owners & Professionals Need to Know
- Complete FAQ on Income Tax Changes
This article provides a comprehensive breakdown of each topic listed above. Scroll through for detailed explanations, tables, and examples — all in one place.
This compilation ensures you don’t miss a single amendment that could impact your taxes, TDS, compliance, or filing approach. Make sure to subscribe to our newsletter and push notifications for instant updates.
Stay tuned and share this with your CA, finance team, or anyone preparing for FY 2025-26!
1. New Income Tax Slab Rates for FY 2025-26
The Finance Act, 2024 revised income tax slab rates under the new tax regime to give relief to middle-income taxpayers. Here’s the updated structure:
| Annual Income (₹) | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹18,00,000 | 15% |
| ₹18,00,001 – ₹24,00,000 | 20% |
| Above ₹24,00,000 | 30% |
- Standard Deduction: Raised to ₹75,000 for salaried taxpayers and pensioners.
- Section 87A Rebate: Continues for income up to ₹7,00,000 – resulting in zero tax liability.
️Example:
Case: ₹12,00,000 income — No Tax Payable
With ₹12 lakh income under the new regime:
- Standard Deduction = ₹75,000 → Taxable income = ₹11.25 lakh
- Slab-wise tax = ₹4L@0%, ₹3L@5% = ₹15K, ₹3L@10% = ₹30K, ₹1.25L@15% = ₹18.75K
- Total = ₹63,750 before rebate
- Since income after deductions is ₹11.25L, no Section 87A rebate, but marginal relief applies if total tax exceeds difference between income and ₹7L
- After marginal relief: Effective tax = ₹0
Read the full slab breakdown with illustrations: https://stoxntax.com/income-tax-slabs-2025-guide
Key Takeaway:
Effective tax for income up to ₹12L can be zero due to standard deduction and marginal relief benefits. Plan your salary structure smartly!
2. TDS Thresholds Enhanced: Full List & Impact
In a move aimed at easing the compliance burden for taxpayers, particularly small businesses and senior citizens, the Finance Act 2024 introduced significant changes to the threshold limits for deduction of tax at source (TDS) under various provisions of the Income Tax Act. These updated limits come into effect from April 1, 2025, and are expected to bring substantial relief and encourage voluntary compliance.
Key Enhancements
Here’s a look at the updated TDS threshold limits:
| Nature of Payment | Section | Old Limit (₹) | New Limit (₹) |
|---|---|---|---|
| Rent (Individual/HUF) | 194I | 1,80,000 | 2,40,000 |
| Professional Fees | 194J | 30,000 | 50,000 |
| Interest (Senior Citizens) | 194A | 50,000 | 75,000 |
Rent Payments (Section 194I)
If you are an individual or Hindu Undivided Family (HUF) not under tax audit and paying rent above ₹2,40,000 annually, TDS at 10% will now be applicable. Earlier, this threshold was ₹1,80,000. This will help reduce compliance for smaller property owners and tenants.
Professional Services (Section 194J)
Payments for professional or technical services, including fees to consultants, CAs, engineers, and doctors, will now attract TDS only if the payment exceeds ₹50,000 in a financial year. Earlier, the limit was ₹30,000.
This change ensures that micro-consultants and small freelancers no longer need to worry about TDS deductions, making compliance easier.
Senior Citizens – Interest Income (Section 194A)
The exemption for deduction of TDS on interest income earned by senior citizens has been increased to ₹75,000 from the earlier ₹50,000. This means that interest income from fixed deposits and recurring deposits up to ₹75,000 annually will not attract TDS for those aged 60 and above.
This revision is aligned with the government’s broader push to provide relief to pensioners and senior citizens.
Implications for Deductors
- Deductors need to update their accounting and payment systems to reflect new thresholds.
- Incorrect deduction or failure to deduct TDS as per revised limits could result in penalties.
Benefits
- Reduces burden on small-scale service providers.
- Improves liquidity by avoiding unnecessary tax deductions for small incomes.
- Encourages better voluntary compliance and simplifies the tax system.
Example:
Ravi, a consultant, earns ₹48,000 from a company during the financial year. Under the old rules, the company would have to deduct TDS @10% if the amount exceeded ₹30,000. Now, no TDS will be deducted as the threshold is ₹50,000.
These changes reflect the government’s commitment to making the tax system more taxpayer-friendly while ensuring effective revenue collection.
3. TCS Changes Under LRS & Education Loans
The Finance Act 2024 has introduced key modifications to the provisions relating to Tax Collected at Source (TCS) under the Liberalised Remittance Scheme (LRS), which governs the transfer of funds outside India by resident individuals. These changes are effective from April 1, 2025, and aim to provide targeted relief for remittances made towards education and medical treatment abroad while maintaining higher TCS for discretionary foreign spending.
What is LRS?
The Liberalised Remittance Scheme (LRS) allows Indian residents to remit up to USD 250,000 per financial year for permitted current or capital account transactions. This includes travel, education, investments abroad, and medical expenses.
TCS Rate Changes under LRS:
| Purpose of Remittance | TCS Rate (Old) | TCS Rate (New from FY25) |
|---|---|---|
| Education/Medical Treatment ≤ ₹7 lakh | Nil | Nil |
| Education/Medical Treatment > ₹7 lakh | 5% | 5% |
| Other Remittances > ₹7 lakh (e.g. travel, investment) | 20% | 20% |
Key Reliefs Introduced:
- Threshold for TCS Exemption: No TCS will apply on the first ₹7 lakh per financial year for education and medical-related foreign remittances.
- No Change for Discretionary Remittances: TCS @ 20% continues to apply for travel, investment, or gifts beyond ₹7 lakh.
Example:
Let’s say Raj transfers ₹10 lakh for his daughter’s education abroad in FY 2025-26:
- First ₹7 lakh → No TCS
- Balance ₹3 lakh → TCS @ 5% = ₹15,000
If he transfers ₹10 lakh for foreign stocks or leisure travel:
- Entire ₹10 lakh above threshold → TCS @ 20% = ₹2,00,000
Educational Loan Provision:
Where education remittance is funded by a loan from a financial institution, TCS @ 0.5% applies only above ₹7 lakh, instead of 5%.
Impact of These Changes:
- Beneficial for students and families sending money abroad for education.
- Medical emergencies abroad are less financially burdensome with lower upfront tax.
- Keeps discretionary luxury spends under higher TCS to ensure better tax tracking.
Compliance Tip:
Always retain purpose-based documentation when remitting funds under LRS. Banks are mandated to collect TCS at the time of remittance.
These TCS amendments bring clarity and sectoral relief while ensuring the integrity of the LRS mechanism.
4. Updated Return Filing Time Extended to 48 Months
In an effort to encourage greater voluntary tax compliance and allow taxpayers to rectify past omissions, the Finance Act, 2024, has extended the time limit for filing an updated return under Section 139(8A) of the Income Tax Act. Commonly known as the ITR-U (Updated Return), this mechanism gives taxpayers a second chance to disclose unreported income or correct previous filing mistakes.
What is an Updated Return (ITR-U)?
An ITR-U allows a taxpayer to file a revised return voluntarily after the due date or even after the assessment has been completed. It is especially useful for those who may have missed declaring certain income or claimed wrong deductions.
New Timeline from FY 2025-26 Onwards:
| Period After End of Assessment Year | Permissible Action |
|---|---|
| Within 12 months | File ITR-U with 25% additional tax |
| 13–48 months | File ITR-U with 50% additional tax |
Earlier, the maximum window was 24 months. This is now extended to 48 months, giving taxpayers more flexibility to correct errors.
Eligibility to File ITR-U:
You can file an updated return if:
- You missed filing the return altogether
- You want to declare additional income
- You want to revise a previously filed return
You CANNOT file an updated return if:
- It results in a refund or reduces tax liability
- Proceedings under search/seizure or reassessment are initiated
Example:
An individual missed reporting ₹2 lakh income in FY 2021–22. They can now file an ITR-U for that year by March 31, 2026, with payment of applicable tax + interest + 50% additional tax.
Benefits of Extended Timeline:
- More time to rectify genuine mistakes
- Reduces risk of penal proceedings
- Improves revenue without litigation
Practical Tip:
ITR-U requires full self-assessment and upfront payment. File only after consulting a tax expert if your case involves complexities like foreign income, capital gains, or audit.
The 48-month window is a powerful opportunity for regularizing past defaults and staying compliant with minimum penalties.
5. New Section 194-T: TDS on Partner Payments
The Finance Act, 2024, has introduced a new Section 194-T in the Income Tax Act, 1961, which has a direct bearing on partnership firms and LLPs. This section mandates the deduction of tax at source (TDS) on payments made by firms to their partners under certain heads. Effective from April 1, 2025, this provision is expected to improve transparency and tax reporting in partnership arrangements.
What is Section 194-T?
This section requires any firm or LLP (excluding sole proprietorships) to deduct TDS at the rate of 10% on payments made to partners if the total of such payments exceeds ₹20,000 per annum.
Applicability:
TDS under Section 194-T applies on the following types of payments to partners:
- Interest on capital
- Salary or remuneration
- Bonus or commission
- Any other payments under the partnership deed
Exemptions:
- Payments not exceeding ₹20,000 in a financial year.
- Partners who submit Form 15G/15H (subject to conditions).
- If PAN is not furnished, TDS may be deducted at a higher rate under Section 206AA.
️ Example:
Let’s say a firm pays the following to Partner A during FY 2025–26:
- Interest on capital: ₹15,000
- Salary: ₹25,000
- Total = ₹40,000
Since the total exceeds ₹20,000, the firm is required to deduct TDS @10% on ₹40,000 = ₹4,000.
Key Compliance Requirements:
- Firms must deduct TDS monthly or at the time of credit/payment, whichever is earlier.
- TDS must be deposited with the government within the specified due dates.
- Partner payments must be properly reported in Form 26Q.
- TDS certificates (Form 16A) must be issued to partners every quarter.
Why This Matters:
Earlier, payments to partners were shown in the books, but there was no requirement to deduct TDS. This led to mismatch issues, delayed recognition in partner tax returns, and lack of traceability.
With Section 194-T:
- Tax credit will reflect in the partner’s Form 26AS.
- Enhances compliance and discourages manipulation of partner income.
- Creates parity between partner income and other professional payments.
Tip for Firms:
Update your accounting systems to tag and track partner-related payments. Monitor limits to ensure timely TDS deduction.
Tip for Partners:
Reconcile the income received with Form 26AS while filing returns. Check for timely receipt of TDS certificates.
This new section will have a wide impact on partnership compliance, especially in service-oriented and consultancy firms with significant partner remuneration.
6. Revised Partner Remuneration Limits Explained
The Finance Act, 2024 has amended the rules relating to the maximum allowable remuneration to partners under Section 40(b) of the Income Tax Act. These changes are effective from April 1, 2025, and impact how firms claim tax deductions on payments made to working partners.
Background on Section 40(b):
Section 40(b) limits the deduction available to firms on the amount of remuneration and interest paid to working partners. These limits are set to prevent excessive payouts being used to reduce firm-level tax liability.
Revised Limits from FY 2025-26:
| Book Profit (or Loss) | Maximum Deductible Remuneration |
|---|---|
| Loss or up to ₹3,00,000 | ₹1,50,000 or 90% of book profit (whichever is higher) |
| Above ₹3,00,000 | 60% of book profit |
Example Calculation:
Let’s say XYZ & Co., a partnership firm, has book profit of ₹8,00,000:
- Allowable remuneration = 60% of ₹8,00,000 = ₹4,80,000
- Any amount paid over ₹4,80,000 to working partners will be disallowed as a tax-deductible expense
If book profit is ₹2,50,000:
- 90% of ₹2,50,000 = ₹2,25,000 (which is more than ₹1,50,000)
- Allowable = ₹2,25,000
Who Qualifies as a Working Partner?
A working partner is one who is actively engaged in the operations of the business. The partnership deed must clearly specify:
- Name of working partners
- Remuneration payable and mode of calculation
Key Compliance Requirements:
- The remuneration clause must be predefined in the partnership deed.
- Actual payment should match what’s mentioned in the deed.
- Must be recorded and disclosed in the firm’s tax audit report (if applicable).
Disallowance Implications:
Any excess amount paid over the allowable limit will be added back to the firm’s income and taxed at applicable rates. This could also lead to interest and penalty for under-reporting income.
Strategic Impact:
- Firms must revisit their partnership deeds before FY 2025-26 begins.
- May need to revise remuneration clauses to stay within allowable limits.
- Smaller firms can optimize remuneration to reduce firm-level tax and individual partner tax jointly.
Coordination Between Firm & Partner Returns:
- Partners declare remuneration as “Business Income” in their ITR.
- Mismatch between firm’s claim and partner’s declaration can raise red flags in assessments.
These updated limits reinforce the need for transparent partner remuneration practices. Firms should consult with tax professionals to ensure that their documentation and practices align with the revised rules.
7. Form 26Q & 27Q Updated: What’s New
In line with the introduction of Section 194-T relating to TDS on payments to partners, the Central Board of Direct Taxes (CBDT) has notified updates to TDS return forms Form 26Q and Form 27Q. These changes, applicable from FY 2025-26, aim to capture new compliance requirements and ensure transparency in tax reporting.
What are Form 26Q and 27Q?
- Form 26Q: Quarterly TDS return for payments made to residents (like professional fees, interest, rent, partner payments, etc.).
- Form 27Q: Quarterly TDS return for payments made to non-residents.
Both forms are mandatory for deductors to report the details of tax deducted at source. What’s New in FY 2025-26?
- New Reporting Field for Section 194-T:
- A specific section code for reporting partner remuneration, interest, or other payments.
- Includes bifurcation for salary, commission, bonus, and interest.
- Revised Validation Rules:
- Software validations have been enhanced to check for correct quoting of PAN, section codes, and payment nature.
- Interest for late deduction/payment will auto-calculate in most utilities.
- Enhanced Cross-Referencing with Form 26AS:
- TDS deducted under 194-T will now reflect in the partner’s Form 26AS, aiding transparency.
Key Points for Deductors:
- Use the latest updated RPU (Return Preparation Utility) issued by NSDL or other authorized providers.
- Mention the correct section code (194T) while filing payments to partners.
- Verify PAN and payment breakup correctly before submission.
Example:
ABC & Co. pays ₹4,00,000 to Partner A as remuneration and interest during Q1 of FY 2025-26.
- ₹4,00,000 × 10% = ₹40,000 TDS deducted
- This must be reported in Form 26Q under Section 194-T
Penalty for Non-Compliance:
- Late filing of TDS returns: ₹200/day under Section 234E (up to max of TDS amount)
- Incorrect reporting: ₹10,000 to ₹1,00,000 under Section 271H
Due Dates for Filing:
| Quarter | Due Date |
|---|---|
| April–June | 31st July |
| July–September | 31st October |
| October–December | 31st January |
| January–March | 31st May |
Documents to Retain:
- PAN confirmation of partners
- TDS challan copies (Form 281)
- Signed Form 16A for partners
These updates align with the government’s larger digitization and tax transparency goals. Firms must train their finance teams to implement these changes effectively.
8. Tax Implications for Salaried Individuals
The Finance Act, 2024 has brought in a host of changes that significantly impact salaried employees starting from FY 2025-26. With revised tax slabs, enhanced standard deduction, and continuation of Section 87A rebate, employees now have more room to optimize their take-home salary.
Key Benefits for Salaried Taxpayers:
- Standard Deduction Increased:
- From ₹50,000 to ₹75,000 under both the old and new regimes (for eligible cases).
- Applies automatically without the need for documentation.
- New Tax Slab Structure under the New Regime:
- The slab rates have been revised, giving more room to lower tax liabilities.
| Income Range (₹) | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹18,00,000 | 15% |
| ₹18,00,001 – ₹24,00,000 | 20% |
| Above ₹24,00,000 | 30% |
- Section 87A Rebate:
- Continued for those with taxable income up to ₹7,00,000.
- Offers rebate of ₹25,000 resulting in zero tax liability.
️ Case Study:
Priya earns ₹12 lakh annually.
- Standard deduction = ₹75,000 → Taxable income = ₹11.25 lakh
- Tax = ₹15,000 (5%) + ₹30,000 (10%) + ₹18,750 (15%) = ₹63,750
- Marginal relief = Yes
- Effective tax can become zero due to marginal relief
Implications for Employers:
- TDS under Section 192 must reflect revised slab rates.
- Need to update payroll systems to integrate the new standard deduction.
- Employee declarations (Form 12BB) should account for regime choice early in the financial year.
Old vs New Regime: What Should You Choose?
- New Regime suits those with few deductions and higher income.
- Old Regime is better if you:
- Pay housing loan interest
- Have HRA claims
- Invest in Section 80C, 80D, 80G
Useful Deductions (Old Regime Only):
- ₹1.5 lakh under 80C (PF, PPF, ELSS, LIC)
- ₹25,000 under 80D (Health Insurance)
- ₹2 lakh under Section 24(b) (Home Loan Interest)
- ₹50,000 under 80CCD(1B) (NPS)
Tips for Salaried Individuals:
- Declare deductions to employer at start of FY to optimize TDS.
- Use income tax calculators to simulate both regimes.
- Don’t miss the deadline for Form 10-IEA if opting into new regime.
These changes give salaried taxpayers more predictability and flexibility. Choosing the right tax regime and planning investments early can lead to significant savings.
9. What Business Owners & Professionals Need to Know
The Finance Act, 2024 introduces crucial tax changes that significantly affect business owners, partnership firms, and professionals (including CAs, doctors, consultants, and freelancers) from FY 2025-26 onward. Understanding these provisions can help optimize taxes, avoid penalties, and stay compliant.
Major Highlights for Business & Professional Income:
- Section 194-T TDS on Partner Payments:
- Firms/LLPs must deduct TDS @ 10% on salary, interest, commission, or bonus paid to partners if the total exceeds ₹20,000 annually.
- Deduction required even if the firm claims it as an allowable expense under Section 40(b).
- Revised Remuneration Limits (Section 40b):
- Based on book profit slabs (e.g., 60% above ₹3 lakh).
- Payments beyond limits will be disallowed as deductions.
- Section 194J TDS Threshold Enhanced:
- No TDS on professional fees up to ₹50,000 (raised from ₹30,000).
- Helps small professionals and freelancers manage cash flows better.
- TDS Compliance & Form 26Q:
- Mandatory quarterly filing
- PAN validation and correct section coding critical to avoid penalty
For Sole Proprietors:
- Enhanced limits under presumptive taxation (Section 44ADA/44AD) continue.
- Maintain books and file ITR-4 if opting for presumptive schemes.
ITR Forms:
- ITR-3: For proprietors or partners with business/profession income.
- ITR-4: For presumptive income up to ₹50 lakh (profession) or ₹2 crore (business).
Common Mistakes to Avoid:
- Paying remuneration without updating the partnership deed.
- Incorrect TDS deduction or non-filing of Form 26Q.
- Not tracking turnover limit for audit applicability under Section 44AB.
️ Example:
Dr. Verma receives ₹48,000 from a hospital in FY 2025–26.
- No TDS applicable as payment is under ₹50,000.
- Earlier, he would have lost ₹4,800 as TDS unless a declaration was submitted.
Deadlines to Remember:
- Advance Tax: Quarterly installments
- TDS Deposits: 7th of the following month
- ITR Filing: July 31 (non-audit) / October 31 (audit)
Audit Triggers:
- Turnover > ₹1 crore (business) or ₹50 lakh (profession)
- Net profit < 6%/8% (if not under presumptive)
- Non-filing of GST returns or mismatch with books
This new tax landscape empowers professionals and small business owners with better thresholds, clarity, and tools—but demands proactive planning and documentation.
10. Complete FAQ on Income Tax Changes
To wrap up this comprehensive guide, here are the most frequently asked questions regarding the Income Tax changes applicable from April 1, 2025, under the Finance Act 2024. These answers provide clarity on regime choice, deductions, compliance deadlines, and new provisions introduced this year.
Regime Choice & Deductions
Q1. Are the new tax slabs mandatory from FY 2025-26? No, the new tax regime is optional. Taxpayers can choose between the new and old regime depending on which offers a lower tax liability.
Q2. Can I still claim 80C, HRA, or home loan benefits? Only under the old regime. The new regime has limited deductions (mostly standard deduction and employer contribution to NPS).
Q3. What is the benefit of the new regime? Simplified compliance, no documentation, and better take-home for taxpayers with minimal deductions.
TDS, TCS & Compliance
Q4. Is TDS applicable on interest income from banks? Yes, but threshold limits have increased. For senior citizens, TDS applies only above ₹75,000 per year.
Q5. When should firms deduct TDS on partner payments? At the time of credit or payment, whichever is earlier, once aggregate annual payout exceeds ₹20,000.
Q6. How do I report TDS under Section 194-T? Through Form 26Q, specifying section code and PAN of partner. Form 16A must also be issued.
Updated Return (ITR-U)
Q7. Who can file an updated return? Any taxpayer who wants to disclose missed income, subject to certain exceptions like search cases and refund claims.
Q8. What is the new time limit? 48 months from the end of the relevant assessment year.
Q9. Will I get a refund if I file ITR-U? No. ITR-U cannot be used to claim a refund or reduce tax liability.
Salary & Professional Income
Q10. I earn ₹12 lakh as salary. Do I need to pay tax? Possibly not. After standard deduction and marginal relief, effective tax may be zero. Use the new regime calculator.
Q11. I earn ₹48,000 from freelance work. Will TDS apply? No. TDS under Section 194J now applies only if annual payment exceeds ₹50,000.
Deadlines & Documentation
Q12. What are the TDS return due dates? 31 July, 31 October, 31 January, and 31 May for Q1–Q4 respectively.
Q13. What is the last date for filing ITR without audit? July 31, 2025.
Q14. What happens if I forget to opt into the new regime? If you’re a salaried taxpayer, you can still choose at the time of filing ITR. For business/professional income, Form 10-IEA must be filed in advance.
These FAQs aim to address the most common concerns. Always consult a tax advisor for case-specific scenarios or changes in interpretation by CBDT.
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