Union Budget Changes of AY 2025-26

Zen IT || Union Budget Changes of AY 2025-26


Union Budget Reforms for AY 2025-26

The Union Budget 2024-25 introduces significant reforms to enhance India's financial landscape. Key changes include revised tax slabs, increased deductions and exemptions for salaried employees and pensioners, and the elimination of the angel tax. These measures are designed to drive economic growth, streamline taxation, and promote innovation.

Tax Slab Changes for AY 2025-26

Old Tax Regime
  1. No modifications have been introduced in the tax slabs under the old tax regime for AY 2025-26.
New Tax Regime
  1. The Union Budget 2024-25 has proposed the following revised tax slabs under the new regime for Individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and Artificial Juridical Persons (AJPs):
      

Rebate under Section 87A
  1. A rebate under Section 87A is available for individuals with a total income of up to ₹7,22,220.
  2. No rebate will be granted beyond this income threshold.
Additional Key Highlights
  1. Surcharge Rate: No changes have been made to the existing surcharge rates.
  2. Corporate Tax Rates: No modifications in the tax rates applicable to domestic companies, AOPs, and cooperative societies.
  3. Tax Rate Reduction for Foreign Companies: The tax rate for non-domestic companies (on income other than that subject to a special rate) has been reduced from 40% to 35%.

Changes in Deductions and Exemptions for AY 2025-26

The Union Budget 2024-25 introduces key revisions to deductions and exemptions under the new tax regime, aimed at providing greater tax relief to individuals. The major changes are as follows:
  1. Increase in Standard Deduction: The standard deduction has been increased from ₹50,000 to ₹75,000 under the new tax regime, effective from AY 2025-26 onwards.
  2. Enhanced Deduction for Family Pension Income: The deduction for family pension income, previously capped at ₹15,000 or 1/3rd of the pension (whichever is lower), has now been increased to ₹25,000 or 1/3rd of the pension (whichever is lower).
  3. Increase in Deduction Limit under Section 80CCD(2): The deduction limit for employer contributions to the National Pension System (NPS) under Section 80CCD(2) has been increased from 10% to 14% for non-government employees under the new tax regime.

Changes in Taxation of Capital Gains (AY 2025-26)

The Union Budget 2024-25 introduces revised tax rates for both short-term and long-term capital gains, impacting various financial and non-financial assets. These changes aim to create a more equitable tax system while reducing the tax burden on lower and middle-income groups.

1. Short-Term Capital Gains (STCG) – Section 111A

The tax rate for short-term capital gains (STCG) on listed shares and mutual funds under Section 111A has been revised as follows:

      

2. Long-Term Capital Gains (LTCG)

The Union Budget 2024-25 introduces significant changes in the taxation of long-term capital gains (LTCG) across various financial and non-financial assets. These revisions aim to simplify the tax structure while providing more equitable treatment for taxpayers.

Key Changes in LTCG Taxation
  1. Revised Tax Rate: Long-term capital gains on all financial and non-financial assets will be taxed at a flat 12.5% (without indexation).
  2. Higher Exemption Limit: The exemption limit for capital gains on certain financial assets has been increased from ₹1 lakh to ₹1.25 lakh per year, applicable from FY 2024-25 onward.
  3. Tax Rate Reduction (Section 112): The tax rate for long-term capital gains on all assets has been reduced from 20% (with indexation) to 12.5% (without indexation).
Updated LTCG Tax Rates

      

Notes
Additional Notes on Specific Assets :
  1. Unlisted Bonds & Debentures:
    1. If sold before 23rd July 2024, the tax rate is 20% without indexation.
    2. If sold on or after 23rd July 2024, they will be treated as short-term capital gains (STCG) and taxed as per applicable rates.

3. Changes in Section 112A

The Union Budget 2024-25 introduces revisions in Section 112A, which governs the taxation of long-term capital gains (LTCG) on listed equity shares and equity-oriented mutual funds.

Key Changes in Section 112A
  1. Revised Tax Rate: The tax rate under Section 112A has been increased from 10% to 12.5%.
  2. Higher Exemption Limit: The exemption limit for LTCG has been increased from ₹1 lakh to ₹1.25 lakh.
      

Additional Notes:
  1. The total exemption limit of ₹1.25 lakh applies cumulatively for both periods combined.
  2. Any LTCG exceeding ₹1.25 lakh will be taxed at the applicable rate based on the sale date.

4. Consolidated Share Entry – Automatic Tax Rate Application

When entering consolidated share transactions and selecting Quarter 2 (16th June to 15th September 2024), the software will consider a sale date after 23rd July 2024 by default.

      

Impact on Tax Calculation:
  1. Since the assigned sale date falls after 23rd July 2024, the new tax rate will be applied based on the revised tax structure.
  2. For transactions subject to Section 112A, this means:
    1. LTCG will be taxed at 12.5% instead of 10%.
    2. The exemption limit remains ₹1.25 lakh.
This automated adjustment ensures compliance with the latest tax regulations without manual intervention.

5. Schedule Pass-Through Income (PTI) – New Quarterly Breakup Columns

The Union Budget 2024-25 introduces updates to the Schedule PTI (Pass-Through Income) section, incorporating a quarterly breakup to reflect the tax rate changes.

New Columns Added in Schedule PTI:
  1. Up to 16th June – 22nd July 2024: The old tax rate is applicable for income recorded in this period.
  2. From 23rd July – 15th September 2024: The new tax rate is applicable for income recorded in this period.
      


6. NRI Tax Provisions (Sections 115AB, 115AC, 115AD, 115E)

The Union Budget 2024-25 introduces revised tax rates for Non-Resident Indians (NRIs) under Sections 115AB, 115AC, 115AD, and 115E.

Updated Tax Rates for NRIs:
  1. Before 23rd July 2024: 10% tax rate applies.
  2. On or After 23rd July 2024: 12.5% tax rate applies.
      

7. Change in Holding Period for Capital Gains (Section 2(42A))

      


Change in Partner's Remuneration Limit

The Union Budget 2024-25 has revised the remuneration limits for partners in a partnership firm, increasing both the maximum and minimum thresholds.

Updated Limits:
  1. Maximum Remuneration Limit: Increased from ₹3 lakh to ₹6 lakh.
  2. Minimum Remuneration Limit: Increased from ₹1.5 lakh to ₹3 lakh.
Revised Calculation Methodology:
  1. For the first ₹6,00,000 of book profit or loss: ₹3,00,000 or 90% of the book profit, whichever is higher.
  2. For the remaining balance of book profit: 60% of the book profit.
These changes aim to provide greater flexibility and higher remuneration entitlements for partners, aligning with evolving business needs.

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