Income Tax Slab Changes | Relief For Middle-Class Taxpayers In Budget 2025? Key Tax Changes Expected
The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, brings significant changes to stimulate economic growth, support the middle class, and ensure fiscal stability.
The key income tax proposals include personal income tax reform focusing on the middle class, rationalisation of TDS/TCS, encouragement of voluntary compliance, reduction of the compliance burden, ease of doing business, and incentives for employment and investment. The finance minister has also announced that the new Income-tax Bill 2025 will be released next week.
The key changes proposed in the Finance Bill 2025 related to income tax, GST, customs, and corporate laws are outlined below.
1. Personal Tax Rates
• No changes have been proposed in the tax rates for assessees opting for the old tax
regime.
• No changes have been proposed in rates of surcharge and education cess.
• The tax rates and slabs under the new tax regime of Section 115BAC have been
proposed to be revised. The new tax structure under the new regime shall be as
follows:
Total Income Tax rate (Assessment Year 2026-27)
Up to Rs. 4,00,000 Nil
From Rs. 4,00,001 to Rs. 8,00,000 5%
From Rs. 8,00,001 to Rs. 12,00,000 10%
From Rs. 12,00,001 to Rs. 16,00,000 15%
From Rs. 16,00,001 to Rs. 20,00,000 20%
From Rs. 20,00,001 to Rs. 24,00,000 25%
Above Rs. 24,00,000 30%
The income threshold for claiming a tax rebate under Section 87A for resident
individuals taxable under the new regime of Section 115BAC has been proposed
to be increased from Rs. 7 lakhs to Rs. 12 lakhs, and the maximum rebate amount has been raised from Rs. 25,000 to Rs. 60,000.
• It is proposed that where resident individuals opt for the new tax regime of Section 115BAC, the incomes chargeable to tax at special rates (for example, capital gains taxable under Section 111A, Section 112, etc.) shall be excluded from calculating the Section 87A rebate.
Updated Income-tax Return
Presently, the deadline for filing an updated tax return under Section 139(8A) is 24 months from the end of the relevant assessment year. The Finance Bill 2025 proposes to extend this deadline to 48 months from the end of the relevant assessment year.
Salary and House Property Income
1. Taxation of Perquisites under Section 17(2)
What the law says:
Section 17(2) lists certain benefits (or “perquisites”) provided by an employer—such as free or concessional utilities (gas, electricity, water, etc.) and employer‐borne travel expenses for medical treatment abroad—that must be added to an employee’s salary income for tax purposes. However, these perquisites are only included if the employee’s salary or gross income exceeds specified thresholds:
Utilities and similar benefits: Taxable if the employee’s salary income (monetary component) exceeds Rs 50,000
Travel expenses for medical treatment abroad: Taxable as a perquisite if the employee’s gross total income exceeds Rs 2,00,000.
Note: These thresholds were originally set in 2001 and 1993, respectively.
2. Determination of House Property Income
Current Rules:
Under the Income Tax Act, the “annual value” of a house property is generally the notional rent that the property could fetch. However, if the property is self‐occupied or the owner is unable to occupy it (for instance, because they live elsewhere for work), the law currently allows the owner to treat the annual value as nil—but only for one property.
Proposed Change:
The Finance Bill 2025 seeks to simplify this rule by extending the nil annual value benefit to up to two house properties, regardless of whether the owner occupies them or is unable to do so for any reason.
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