7 Major Income Tax Changes in 2025 That Could Impact Your Finances

7 Big Income Tax Changes in 2025 That Will Affect Your Money

 The year 2025 has brought several major changes to India’s income tax rules — from a higher tax-free income limit to easier filing deadlines.

 These updates, announced through the Union Budget in February and later government notifications, aim to reduce the tax burden on individuals and make compliance simpler. Knowing about them can help you save money and avoid penalties. Let’s look at the seven most important changes.

 

1. Higher Tax-Free Income Limit

In a major relief for taxpayers, the government has increased the tax-free income limit under the new tax regime to ₹12 lakh. With the standard deduction of ₹75,000, salaried individuals can now earn up to ₹12.75 lakh without paying any tax. This is one of the biggest steps taken to ease the burden on the middle class.

 

2. More Time to File Your Income Tax Return

For non-audit cases, the ITR filing deadline has been extended from 15 July to 15 September 2025. Announced in May, this change gives taxpayers extra time due to system upgrades and aims to make the filing process smoother.

 

3. Double the Time for Filing an Updated Return (ITR-U)

If you’ve made a mistake in your tax return or missed reporting some income, you now have 48 months instead of 24 months to file an updated return (ITR-U). This extended period also allows you to claim a refund for up to four years.

 

4. New Income Tax Bill Passed

In August 2025, Parliament passed a new Income Tax Bill, replacing the old 1961 Act. This marks a major overhaul of India’s tax laws.

5. No More ‘Deemed Rent’ on Vacant Property

If you own a self-occupied or vacant property, you no longer have to declare any ‘notional rent’ as income. This change is especially helpful for government employees who often have to leave properties vacant due to frequent transfers.

 

6. Bigger Relief for Senior Citizens

For those aged 60 and above, the tax exemption limit on interest income under Section 80TTB has been doubled — from ₹50,000 to ₹1 lakh. This will reduce tax liability for many retirees who rely on interest earnings.

 

7. Higher TDS Limit on Rent

The annual rent threshold for deducting TDS has been raised from ₹2.4 lakh to ₹6 lakh. This means fewer people will need to deduct tax on small and medium rent payments.

 

In short, from raising tax-free limits to simplifying rules and extending deadlines, the 2025 tax changes are designed to make life easier for taxpayers. But to get the most out of these benefits, it’s important to stay informed, plan your finances well, and file your returns on time.

Key Highlights of the Revised Income Tax Bill

 

1. ‘Tax Year’ Replaces ‘Assessment Year’

The Bill defines the tax year as the 12-month financial year (April 1 – March 31), removing the old confusion of “previous year/assessment year.” Now, all income earned in a financial year will be taxed in the same “tax year,” making filing simpler.

 

2. No Change in Tax Rates or Slabs

The Bill intentionally leaves existing tax rates and slabs unchanged. The current basic exemption limit and tax brackets remain the same, ensuring continuity for taxpayers.

 

3. Massive Simplification

The length of the law has been cut in half. Overlapping provisions have been merged, and outdated terms removed. For example, multiple sub-sections and legacy cross-references have been replaced with clear tables and sub-clauses. The structure has been reorganized from 47 chapters to 23, and from hundreds of scattered provisions to 536 well-structured sections.

 

4. Unified Deductions

Multiple deductions (like Sections 80C–80U) are now grouped under a single heading — “Deductions in Computing Total Income” — so taxpayers can see all benefits in one place. Notably:

 

Standard deduction on house property is now clearly allowed on rent after municipal tax deduction.

 

Pre-construction home loan interest can now be spread over five years, even for rental properties.

 

These clarifications remove many of the grey areas from the previous law.

5. Digital and Faceless Compliance

The Bill formally codifies the faceless tax system. Assessments, appeals, and notices will now be conducted mainly online, with clear timelines. 

TDS/TCS rules have also been simplified — for example, taxpayers can apply for a ‘zero’ deduction certificate before the start of the year, and even small refunds can be issued after the deadline without penalties.

 

6. NRI Residency Rules

The income-threshold test has been made official. An Indian citizen or Person of Indian Origin (PIO) who stays in India for 120 days (+60 days) in a year will be treated as a resident if their Indian income exceeds ₹15 lakh.

 On the other hand, NRIs earning less than ₹15 lakh in India are exempt from this stricter 60-day rule. In short, high-income NRIs now face tougher criteria to qualify as non-residents.

 

7. Rules for Trusts and Charities

Restrictions on anonymous donations to religious trusts have been eased. The Bill fully restores tax exemption on “anonymous” donations for religious institutions (but still restricts them for charities engaged in social services). This change rewards genuine religious trusts while maintaining transparency.

 

8. Other Amendments

 

Deduction for inter-corporate dividends (Section 80M) has been reinstated.

 Standard pension re-commutation deduction remains intact.

 Rules for carrying forward corporate losses have been made more flexible for “beneficial owners,” following committee recommendations.