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.
