Key Highlights of Union Budget 2025: Direct & Indirect Tax Announcements

Direct Tax Announcements

A new Income Tax Bill (Bill 2025) would be placed in Parliament next week. It is succinct and close to half of the present law. It is also simple to understand, leading to tax certainty and reduced litigation.

Individual tax regime:?

Under the Individual tax regime, incomes up to INR 12 lakh are not subject to income tax. The new tax regime states the following structure: -?

Rebate u/s 87A of the ITA for those choosing the new tax regime is proposed to increase from ?25,000 to ?60,000 for incomes up to ?12,00,000. This excludes special income, such as capital gains taxed u/s 111A and 112.

In comparison to the above, the old tax regime prescribes the following rates for FY 2025-26:-

Rebate u/s 87A of the ITA under the old regime is available at Rs.12,500/- for income upto Rs.5 Lakhs

Updated tax Return u/s 139(8A) of the ITA

The time limit to file an updated tax return has been extended to 5 years from the current 3 years from the end of the FY and this is w.e.f. April 1, 2025. This is however subject to the following changes: -

• An additional 60% tax is payable, if filed after 3 years but within 4 years from the end of the FY.
• An additional 70% tax payable, if filed after 4 years but within 5 years from the end of the FY.

Rationalization of TDS and TCS provisions:

• W.e.f. 1 April 2025 there would be no requirement to collect TCS on LRS remittance by way of loan from financial institutions for education. The limit for TCS on other LRS remittances by authorized dealers and for sellers of overseas tour program packages has been increased from Rs. 7,00,000 to Rs. 10,00,000.
• It has been proposed to omit sections 206AB and 206CCA w.e.f. 01.04.2025 which requires deduction & calculation of tax at higher rate when the deductee/collectee is a non-filer of income-tax return.
• Section 206C(1H) requiring sellers to collect TCS @ 0.1 % on aggregate value exceeding Rs. 50 lakhs is proposed to be omitted w.e.f. 01.04.2025.
• Delay in deposit of TCS collected till the date of filing TCS statement has been de-criminalized.
• TDS rates proposed have been tabulated below.

Transactions tax:

• The procedure for speedy approval for Companies’ mergers will be rationalized. Also, there would be a much-simplified process for seeking approvals.
• The loss carried forward to the amalgamated entity pursuant to amalgamation or business re-organizations shall be available for carry forward and set-off for not more than 8 years immediately succeeding the assessment year for which such loss was first computed for predecessor entity. This is contrast to the existing situation where carry forward is computed from the year when the amalgamation took place.
• The Long-term capital gains (LTCG) tax for business trusts (REITS, InvIT) rationalized to 12.5% (plus applicable surcharge and cess).
• The LTCG tax on transfer of certain securities by FIIs has been rationalized upward from 10% to 12.5% (plus applicable surcharge and cess).

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Transfer Pricing:

• In respect of international transaction or specified domestic transaction, it has been proposed that arm length price (ALP) determined for one year can be valid for such similar transaction(s) for next two years also. This proposal amendment will take effect from AY 2026-27 and year(s) thereafter.

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Miscellaneous provisions:

• It is proposed that the activities of a non-resident in India which are confined to the purchase of goods in India for the purpose of export shall not constitute significant economic presence of such non-resident in India. The amendment will take effect from 01.04.2026 onwards. ?
• Section 44BBD of the ITA is proposed to be inserted w.e.f. 01.04.2026 which provides that if a NR provides services or technology to an Indian Company to help them set up or run an electronics manufacturing facility under a government-approved scheme, then 25% of receipts from these specified transaction(s) will be considered as taxable business income of non-resident in India. However, if the non-resident opts for this tax rule, it cannot claim deductions for brought forward losses or unabsorbed depreciation.
• Extending the last date for incorporation of eligible start-ups for tax holiday of 3 years out of first 10 years from 31 March 2025 to 31 March 2030.
• Time limit to impose penalties rationalized – It is proposed that any order imposing penalty under the ITA shall be passed within 6 months from the end of the quarter in which connected proceedings are completed, or the order of appeal is received by the Principal Commissioner or Commissioner, or the order of revision is passed, or the notice for imposition of penalty is issued, as the case maybe. Also, in relation to Sections 271C, 271CA, 271D, 271DA, 271DB and 271E of the ITA, penalties would be levied by the AO and not the JCIT
• Extension of the validity of registration for small charitable trust from existing five years to 10 years w.e.f. 1 April 2025.
• For the purpose of block assessment (in case of search and seizure), the term undisclosed income would also include virtual digital assets.?
• Provisions relating to annual value of self- occupied property simplified – It is proposed that the annual value of the property consisting of a house, or any part thereof shall be taken as NIL (available for 2 houses), if the owner occupies it for his own residence or cannot occupy it due to any other reason.
• Exemption to withdrawals by Individuals from National Savings Scheme from taxation – It is proposed to amend section 80CCA of the ITA to provide exemption on the withdrawals made by individuals from NSS deposits on or after 29 August 2024 for which deduction under section 80CCA was already allowed on or before 1 April 1992.

GST and Indirect Tax Announcements

The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman, presented the Union Budget 2024-25 in Parliament on February 2, 2025. The proposed changes primarily align with the recommendations made by the GST Council during its 55th meeting on December 21, 2024. Below are the key highlights of the proposed amendments under the GST Law.

Amendments in CGST Act, 2017 :

A. Section 2 (Definitions):

• ISD now includes interstate supplies under reverse charge (effective April 1, 2025).
• Clarification on 'Local Fund' and 'Municipal Fund' definitions for local authorities.
• New definition for “Unique Identification Marking” for Track and Trace Mechanism.

B. Sections 12 & 13: Omission of time of supply provisions for vouchers.

C. Section 17: Replacement of "plant or machinery" with "plant and machinery" retrospectively from July 1, 2017.

D. Section 20: Explicit provisions for ISD distribution of credit for interstate reverse charge transactions (effective April 1, 2025).

E. Section 34: Reversal of ITC if a credit note is issued, applicable to registered recipients.

F. Section 38: Changes to input tax credit details, making provisions more inclusive.

G. Section 39: Conditions/restrictions for return filings without needing amendments to GST Act.

H. Sections 107 & 112: Reduction in pre-deposit for penalty appeals from 25% to 10%.

I. Section 122B: New penalties for non-compliance with Track and Trace Mechanism.

J. Section 148A: Introduction of provisions for Track and Trace for specified commodities.

K. Schedule III Amendments: Insertion of clause (aa) in para 8 of Schedule III - that warehoused goods in SEZ or FTWZ before export or DTA clearance are not treated as supplies.

2. Key Amendments Explained :

A. Input Service Distributor (ISD): Inclusion of interstate reverse charge transactions under ISD provisions (effective April 1, 2025).

B. Local Authority: Clear definitions for "Local Fund" and "Municipal Fund" within local authority criteria. In Section 2(69) clause (c) insertion to explanation of terms local fund and municipal fund-

C. ‘Local fund’ refers to any fund under the control or management of a local self government authority established to discharge civic functions within a Panchayat area and vested by law with the power to levy, collect, and appropriate any tax, duty, toll, cess, or fee, regardless of its nomenclature.

D. ‘Municipal fund’ refers to any fund under the control or management of a local self-government authority established to discharge civic functions within a Metropolitan or Municipal area and vested by law with the power to levy, collect, and appropriate any tax, duty, toll, cess, or fee, regardless of its nomenclature.

E. Unique Identification Marking: A new definition for digital marking used in the Track and Trace Mechanism.

F. Omission of Provisions for Vouchers: Sections 12(4) & 13(4) regarding time of supply for vouchers removed for simplification.

G. Plant and Machinery: “Plant or machinery” replaced with “plant and machinery,” retroactively from July 1, 2017, clarifying previous court judgments.

H. ISD Distribution on Reverse Charge Mechanism: Explicit provision for ISD's role in reverse charge transactions.

I. Credit Note Reversal: Reversal of corresponding input tax credit in respect of a credit-note, if availed, by the registered recipient, for the purpose of reduction of tax liability of the supplier in respect of the said credit note.

J. Changes in Returns Filing: Government can prescribe additional conditions/restrictions for filing returns.

K .Pre-deposit Reduction: Reduced pre-deposit for penalty-related appeals from 25% to 10%.

L. Penalties for Non-compliance with Track and Trace: ?1 lakh or 10% of tax payable, whichever is higher, for violating the Track and Trace Mechanism.

M. Track and Trace Mechanism: System for tracking specified goods to prevent evasion, including Unique Identification Marking (UIM).

N. Warehoused Goods in SEZ/FTWZ:

• Goods warehoused in SEZ/FTWZ before export or domestic clearance not treated as supply under GST.
• This is applicable retrospective from 01st July 2017.

These legislative changes aim to simplify GST processes, enhance compliance, curb tax evasion, and provide greater clarity on key provisions.