The Union Budget 2025 has introduced series of transformative direct tax reforms aimed at simplifying the tax framework, alleviating compliance burdens and providing substantial relief to individual taxpayers.

The budget also outlines extensive measures to support the Micro, Small and Medium Enterprises (MSME) sector, thereby broadening the scope of government incentives and fostering economic growth.

One significant proposal in this year’s budget is the introduction of a new Income Tax Bill which seeks to streamline tax provisions, enhance accessibility and reduce litigation, creating more efficient and transparent tax administration.

In a move to ease the fiscal burden on middle class, the government has restructured the tax slabs under the Concessional Tax Regime (CTR). The revised tax slabs under CTR  are  proposed to  be re-organized as follows:

The icing on the cake is rebate threshold increase from INR 7,00,000 to INR 12,00,000, ensuring that individuals earning up to INR 12 Lakhs do not pay any income tax.

Table 2 summarises tax savings for individuals at various taxable income levels. Several additional tax measures have been announced to enhance taxpayer convenience like rationalization of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions to increase exemption limit for interest on securities and dividend income has been increased from Rs 5,000 to Rs 10,000.

Additionally, for bank and post office interest, exemption limit has been raised to Rs 50,000 for regular taxpayers and Rs 1,00,000 for senior citizens. The TDS applicability threshold for rental income has also been revised from Rs 2,40,000 annually to Rs 50,000 per month.

The deadline for filing updated tax returns has been extended up to 48 months with applicable additional taxes for late filings.

The budget also enhances the Micro Small & Medium Enterprises (MSME) Limit of classification by virtue of Investment and Turnover limit to 2.5 and 2 times respectively.

By restructuring tax slabs, enhancing rebates and expanding support for the MSME sector, the Union Budget 2025 underscores government’s commitment to tax simplification, economic inclusivity and growth.

These progressive measures not only modernize India’s tax framework but also create a more efficient and taxpayer-friendly fiscal environment, reinforcing the country’s path toward sustainable economic development.

(The writer is Director – International Tax and Transaction Services, Ernst & Young Limited Liability Partnership. The article was also co-authored by Mr Yash Domadia, Senior Manager, Tax and Transaction Services, Ernst & Young LLP)