Key Income Tax Updates for FY 2025–26 (AY 2026–27)

The Union Budget 2025 has introduced a series of important amendments to the Income Tax framework, applicable from Financial Year 2025–26. These changes are designed to enhance tax compliance, reduce the burden on taxpayers, and modernize tax administration. Major highlights include revised tax slabs under the New Tax Regime, increased rebate limits, updated TDS/TCS provisions, and modifications in the presumptive taxation scheme.

✅ Revised Tax Slabs – New Regime Becomes Default

As per the updated rules, the New Tax Regime under Section 115BAC is now the default option. The following slab rates are applicable for income earned during FY 2025–26:

🔹 Note: The Old Tax Regime continues as an optional route for those who prefer to claim deductions and exemptions.

🧾 Old Tax Regime – Optional Slab Rates

🎁 Rebate under Section 87A Enhanced

The rebate limit under Section 87A has been increased to ₹60,000 in the New Tax Regime. As a result, individuals with a total income up to ₹12,00,000 will not be required to pay any income tax, offering substantial relief to middle-income earners.

📊 TDS and TCS Amendments in FY 2025–26

The core framework of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) remains intact, but the Income Tax Bill 2025 introduces key refinements for clarity and efficiency:

◼️ TCS Applies To:

• Sale of alcohol, tendu leaves, scrap, and minerals (1%–5%)
• Sale of motor vehicles above ₹10 lakh (1%)
• Foreign remittances exceeding ₹7 lakh (5%)

◼️ Relevant TDS Sections:

• 194A – Interest other than on securities
• 194I – Rent payments
• 194J – Technical/professional services and royalty
• 194H – Commissions
• 194C – Contractual payments

To simplify compliance (excluding salary TDS), many provisions are now presented under Section 393 of the Income Tax Bill in a standardized table format.

⚠️ Non-compliance with TDS/TCS provisions may attract defaulter status and interest at 1% per month on the outstanding tax amount.

📈 Increased TDS Threshold Limits (Effective from April 1, 2025)

To minimize the compliance burden on small taxpayers and reduce unnecessary deductions, the threshold limits under several TDS sections have been revised as follows:

🧮 Updates to Presumptive Taxation (Section 58)

An important amendment in the presumptive taxation scheme involves inclusion of “profit actually earned” as a consideration under Section 58, thereby aligning reported profits more closely with real business income.

◼️ Who Can Opt:

• Resident individuals, HUFs, and partnership firms (excluding LLPs)
• Engaged in eligible businesses or professions such as legal, medical, accountancy, architecture, etc.

Not applicable to commission agents or specified non-eligible professionals.

◼️ Presumptive Income Calculation:

• 6% of turnover via digital or banking channels
• 8% for cash-based turnover
• OR actual profit, whichever is higher

◼️ If Declaring Lower Profit:

Taxpayers must maintain books of account and undergo audit if:

• Declared profits fall below prescribed presumptive percentages
• Total income exceeds the basic exemption limit

🔚 Conclusion

The income tax reforms for FY 2025–26 introduce notable enhancements in tax slab rates, rebate limits, and TDS thresholds, making the system more accessible and equitable. The updated New Tax Regime provides relief to individuals across multiple income brackets, especially with the increased rebate under Section 87A. Meanwhile, revised thresholds for TDS deductions and changes to the presumptive taxation scheme are expected to encourage voluntary compliance and reduce disputes. As these provisions become effective from April 1, 2025, it is essential for taxpayers to reassess their tax plans and seek expert advice if needed.

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Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.