August 2025 Tax Update: ₹12 Lakh Slab Benefit, New Rules on Deductions, and Compliance Changes Explained

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by

Himanshu
in ,

Latest Tax Updates in India – 2025: A Detailed Guide for Individuals and Businesses

India’s tax landscape has undergone some of its most significant changes in years. With the Union Budget 2025 introducing bold reforms and the new Income Tax Bill 2025 aiming to simplify the law from April 2026, taxpayers — whether salaried individuals, self-employed professionals, or businesses — need to stay informed.

This guide breaks down the changes in simple language, explains how they impact you, and gives practical tips for tax planning under the new framework.

1. Big Relief for Individual Taxpayers

Higher Tax-Free Income

One of the most impactful updates is that income up to ₹12 lakh is now tax-free under the new regime.
This is due to a combination of:

  • Zero tax for income up to ₹12 lakh
  • A standard deduction of ₹75,000 for salaried individuals and pensioners

Example:
If you earn ₹12.5 lakh annually, after subtracting the ₹75,000 deduction, your taxable income is ₹11.75 lakh — meaning you still fall under the zero-tax bracket.

Revised Tax Slabs (New Regime)

The new regime slabs for FY 2025-26 are:

Income Range (After Deductions)Tax Rate
Up to ₹12,00,0000%
₹12,00,001 – ₹16,00,0005%
₹16,00,001 – ₹20,00,00010%
₹20,00,001 – ₹24,00,00015%
Above ₹24,00,00030%

Note: The old regime is still available for those who prefer claiming deductions under 80C, 80D, etc., but the government is clearly pushing the new regime as the default.

2. TDS and TCS Thresholds Increased

What Changed

  • Interest income TDS: Deduction now applies only if annual interest exceeds ₹1 lakh (earlier ₹50,000 for senior citizens and ₹40,000 for others).
  • Rent TDS: Limit increased to ₹6 lakh per year (earlier ₹2.4 lakh).

Impact:
For many small landlords and deposit holders, this means less hassle and fewer small TDS deductions to claim back at year-end.

3. Relief on National Savings Scheme (NSS) Withdrawals

Withdrawals from NSS made on or after 29 August 2024 are now completely tax-exempt.
This encourages long-term savings and makes NSS more attractive, especially for risk-averse investors.

4. Longer Window to Revise ITR

The time limit to file an updated return has been extended from 2 years to 4 years from the end of the relevant tax year.

Why This Matters:
If you discover missed income, deductions, or want to correct an error, you now have double the time to fix it — reducing the risk of penalties.

5. The New Income Tax Bill 2025 – A Major Shift from April 2026

The Income Tax (No. 2) Bill, 2025 will replace the 1961 Act from April 1, 2026.

Key Highlights

  • Fewer sections: Cut from 800+ to 536.
  • Simplified chapters: From 47 to 23.
  • “Tax Year” concept: No more “Previous Year” and “Assessment Year” confusion — the tax year will match the financial year directly.
  • Digital-first, faceless assessments: Minimal human interaction to reduce corruption and speed up processing.
  • Clearer rules for:
    • Standard deduction on house property income
    • Pre-construction interest on let-out property
    • Tax treatment of commuted pension
    • Handling anonymous donations
    • Taxation of vacant commercial property

6. Benefits for Government Employees Under UPS

The Unified Pension Scheme (UPS) now gets tax treatment equal to the National Pension System (NPS).
This includes:

  • Tax-free employer contributions (up to the limit)
  • Tax benefits on self-contribution
  • Exempt returns and partial withdrawals

This change is particularly beneficial for government employees who previously had less favourable pension tax treatment.

7. Clarification on Section 87A Rebate

A recent tax ruling has confirmed that rebate under Section 87A (zero tax if taxable income ≤ ₹12 lakh in the new regime) also applies to certain short-term capital gains.
This means investors with modest taxable income after capital gains can still enjoy full tax relief.

8. GST Simplifications (State-Level Examples)

Some states (like Delhi) have amended GST laws to:

  • Allow easier input tax credit claims
  • Offer optional amnesty schemes for past disputes
  • Simplify filing procedures

These moves aim to improve compliance and reduce litigation for small and medium businesses.

9. Tax Collection Trends

Between April and August 2025:

  • Direct tax collections fell slightly (about 4%) due to increased exemptions and delayed filings.
  • Refunds increased by 10%, putting more money back in taxpayers’ hands.
  • The government still targets a 13% rise in annual collections for FY 2025-26 — relying on improved compliance and growth.

Practical Tips for Tax Planning in FY 2025-26

  1. Evaluate old vs new regime: With the higher zero-tax threshold, the new regime may now be better for most.
  2. Check TDS applicability: If your income sources fall below new thresholds, ensure your bank/tenant updates records to avoid unnecessary TDS.
  3. Leverage NSS: If you have old NSS accounts, withdrawals after August 2024 are tax-free.
  4. Plan ahead for the 2026 law change: Organise records digitally and get used to e-verification — it will be the norm.
  5. If in UPS/NPS: Maximise your contributions to enjoy full benefits.

Bottom Line

2025 marks a turning point in India’s tax administration — simpler slabs, higher exemptions, fewer deductions, and more digital compliance. While the full effect of the new Income Tax Bill 2025 will only be felt from April 2026, taxpayers should start adapting now to make the transition smooth.

Disclaimer: This article is for general informational purposes only. Tax laws are subject to change and interpretation. For personalised advice, consult a qualified tax professional or financial advisor before making decisions.