Budget 2025 and you: How it impacts your money next financial year

Finance Minister Nirmala Sitharaman presented the Union Budget 2025 today, unveiling a series of key reforms that will enthuse taxpayers, simplify taxation, boost foreign investment and enhance financial inclusion. Among the major highlights were major tax revisions that include nil tax for incomes up to Rs 12 lakh, a new Income Tax Bill set to be introduced next week, rationalised TDS/TCS limits and expanded benefits for homeowners.

Here's a breakdown of the biggest Budget 2025 announcements and what they mean for you at a personal level.

Zero tax for income up to Rs 12 lakh

You don't have to pay any income tax if your annual income is Rs 12.75 lakh (up to Rs 12 lakh and an additional Rs 75,000 standard deduction).

Previously, this limit under the new tax regime was Rs 7 lakh (Rs 7.75 lakh with standard deductions).

TDS and TCS revisions

While income tax changes have hogged all the limelight, it is not the only major relief offered to the country's citizens. TDS (tax deducted at source) and TCS (tax collected at source) have also been revised.

• The TDS threshold on interest income for senior citizens has been doubled from Rs 50,000 to Rs 1 lakh, and for others from Rs 40,000 to Rs 50,000.
  
• The rental income threshold for TDS has increased from annual limit of Rs 2.4 lakh to monthly limit of 50,000 (annually equating to Rs 6 lakh), benefiting small landlords and tenants.
  
• The threshold for TCS on foreign remittances under RBI's Liberalized Remittance Scheme (LRS) has been increased from Rs 7 lakh to Rs 10 lakh.
  
• TCS on education-related remittances financed by loans has been removed, making overseas education more accessible.
  
• Previously, TDS was deducted if the total dividend payout from mutual funds exceeded Rs 5,000 in a financial year. This threshold has now been increased to Rs 10,000, reducing the number of investors who will be subject to TDS on dividends (Section 194K).

New Income Tax Bill

A new Income Tax Bill is set to be introduced next week, potentially bringing further simplifications and more streamlined compliance requirements.

Deadline extended for filing updated returns

The government has extended the deadline for filing updated income tax returns from the current limit of two years to four years after the relevant assessment year.

However, to encourage timely compliance, additional tax will apply:

• 60 per cent of the total tax and interest if the updated return is filed between 24 and 36 months,
  
• 70 per cent if filed between 36 and 48 months.
  
• If filed before 24 months, the rates remain unchanged.

Revamped KYC

The government will roll out a revamped Central Know Your Customer (KYC) system in 2025, along with a streamlined framework for periodic updates. This enhanced registry aims to simplify the KYC process, making it more user-friendly and efficient.

NPS Vatsalya tax benefits (for old tax regime only)

• Contributions to NPS Vatsalya will now be eligible for deductions under Section 80CCD(1B) of the Income Tax Act, similar to the existing National Pension System (NPS).
  
• Taxpayers can now claim deductions of up to Rs 50,000 for investments in both NPS and NPS Vatsalya combined.
  
• That said, this may not turn out to be a significant benefit because it will accrue to those who stick to the old tax regime, which is anyways now a very small and dwindling number.

Relief for homeowners with two properties

Previously, an individual could claim up to two properties as 'self-occupied' only if they were residing in them or unable to due to employment or business requirements elsewhere. In such cases, the deemed rental value was Nil, and no notional income was added to the taxable income.

However, the latest Budget has removed these conditions, allowing individuals to claim two properties as self-occupied, regardless of circumstances and ensuring no notional rental income is imputed.

100 per cent FDI limit for insurance sector

The FDI limit in the insurance sector has been raised from 74 per cent to 100 per cent, allowing foreign players to enter India. This can be good news for Indian consumers, as foreign insurers' entry can lead to spur further competition in the industry, which is generally good for the customer.

However, the 100 per cent limit comes with a stipulation that all premiums collected must be reinvested within India.

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