Welcome to the Budget edition of Beyond Headlines! The Finance Bill 2025 introduces several key amendments to the Income-tax Act, 1961, bringing notable changes for individuals, businesses, and financial institutions. Staying true to its theme of trust, the government has focused on simplifying tax provisions while balancing relief and compliance measures. We of course await the new tax code to be released next week. However, new code is not likely to bring any new policy changes and it could also take a while before its takes into effect as law.
Globeview team has handpicked a few Income-tax proposals of significance.
PERSONAL TAXATION
One of the most talked-about announcements is the enhanced tax exemption under the new tax regime. Individuals earning up to INR 12 lakh will now not be required to pay tax, making the new regime more attractive for middle-class taxpayers. To clarify, the tax slabs remain relevant and INR 12 lakhs is not a new basic exemption limit. However, a taxpayer gets a full rebate of tax if his income is upto INR 12 lakhs. The old tax regime will virtually be redundant now. Additionally, all other slab rates have been revised, bringing significant relief to a broad category of taxpayers.
For high-net-worth individuals, the maximum tax rate remains at 39%, continuing to make the new regime beneficial. No further change to the long-term capital gains tax at 14.95%.
To put this into perspective, salaried individuals with income up to INR 12.75 lakh, professionals under 50% presumptive taxation with income up to INR 24 lakh, and proprietorship businesses under 6% presumptive taxation with revenue up to INR 2 crore will have no tax liability. This is due to the tax rebate available for those with taxable total income up to INR 12 lakh.
However, a key change affects tax on investment income. From FY 2025-26, tax rebates will no longer be available on (i) any long-term capital gains or (ii) short-term capital gains on STT-paid equity investments. Previously, rebates were allowed for long-term capital gains (except STT-paid gains). As a result, individuals earning only investment income cannot take the benefit of no tax upto INR 12 lakhs.
Clarity has also been provided on Unit Linked Insurance Plans (ULIPs), where proceeds from high-premium ULIPs will now be taxed as capital gains & not at regular tax rates.
Multiple residential property owners have something to cheer to. Previously, a second house was exempt from deemed rental income only if (i) it was actually occupied, or (ii) could not be occupied due to employment or business elsewhere. Now, up to two houses will not be treated as deemed let-out, regardless of circumstances.
The exemption limit for TCS under LRS has been increased from INR 7 lakh to INR 10 lakh. Furthermore, remittances for education purposes linked to loans obtained from specified financial institutions will now be exempt from TCS.
Read more updates on personal taxation here.
M&A TAXATION
Another significant changes has been introduced regarding the carry forward of losses during amalgamations. Under the new provisions, if a loss-making company is amalgamated with another entity, the fresh 8-year period for carrying forward losses will no longer be available. Instead, losses can only be set off within the original 8-year window from the year they were incurred. The unabsorbed depreciation continues to be carried forward indefinitely. One area where clarity is needed is, whether this amendment will apply to amalgamations where the appointed date falls before April 1, 2025, but the effective date is later.
On a positive note, the government has committed to simplifying the merger approval process and expanding the scope of fast-track mergers. Currently, fast-track mergers are only permitted for small companies, wholly owned subsidiaries, and startups. The proposed changes could extend this benefit to a wider range of corporate transactions, reducing regulatory delays.
Read more updates on M&A related announcements here. You may also watch a short video from our colleague Chirag Chordia explaining the amendments here.
Extension of tax holiday for Startups and IFSC units
Incorporation deadline for startups has been extended to March 31, 2030, a five- year extension from the previous deadline of March 31, 2025. Eligible startups will continue to enjoy a 3-year tax holiday within the first 10 years of incorporation, providing much-needed relief for early-stage businesses.
The Finance Bill 2025 reinforces the government's commitment to promoting the International Financial Services Centre (IFSC) as a global hub for financial services and investment. A key highlight is the extension of the sunset clause for tax benefits on new IFSC units. Businesses now have until March 31, 2030, to commence operations in IFSC and avail themselves of the various tax incentives.
Additional relaxations for IFSC units have also been introduced, further enhancing India's attractiveness as an international finance hub. Read more about additional relaxations here.
OTHER KEY UPDATES
The Income-tax Bill is expected to be released next week. The focus as explained by Finance Ministry officials today in post Budget interviews is to simplify the language and make the law easy to understand.
Taxpayers can opt to apply the arm's length price determined in a transfer pricing assessment for the next two years, subject to prescribed procedures. At first glance, this provision may not see widespread adoption.
Effective April 1, 2025, threshold limits for tax deduction (TDS) have been increased to ease compliance and exclude smaller transactions from tax withholding. Additionally, enhanced TDS and TCS rates for non-filers have been abolished, simplifying tax compliance.
For purchase and sale of goods, the TCS obligation on sellers has been withdrawn, while the TDS liability on buyers will continue. Read more updates about TDS and TCS provisions here.
One proposal we didn't see in the Budget 2025 concerns the OECD's Pillar 2 project. Pillar 2 introduces a minimum tax of 15% on profits. India has not introduced Pillar 2 provisions in its domestic laws. The impact is expected to be minimal in the short-term.
Originally published February 2024
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