Key Proposals from the Finance Bill 2025 | Direct Tax

?? New Income-Tax Bill on the Horizon: A ‘New income-tax bill’ shall be introduced during the next week which shall be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation.

?? Non-Residents & International Taxation

1.???? ?? Presumptive Taxation for Non-Residents: Non-residents providing services or technology for electronic manufacturing in India (EMFs) will be subject to presumptive taxation under Section 44BBD, with 25% of gross revenue deemed as taxable business income.

2.???? ?? Long-Term Capital Gains for FPIs: The long-term capital gains tax rate for Foreign Portfolio Investors (FPIs) has been rationalised from 10% to 12.5% on the transfer of all securities.

3.???? ?? Capital Assets Definition Expanded: The definition of capital assets now includes securities held by Category 1 & 2 AIFs, ensuring clarity that the income will be taxed as capital gains, not business income.

4.???? ?? SEP Provisions Amended: The SEP provisions will be amended to exclude activities of non-residents confined to the purchase of goods in India for export.

?? IFSC Push! ??

India is set to further strengthen its position as a global financial hub with new tax proposals aimed at expanding the role of International Financial Services Centres (IFSCs). Key updates include:

1.???? ?? Extended Tax Benefits for IFSC Units: Tax exemptions for IFSC units have been extended until March 31, 2030, ensuring stability and certainty for businesses operating in these center's.

2.???? ??? Life Insurance Policies Exemption: Non-residents purchasing life insurance from IFSC-based offices will now benefit from tax exemptions, without premium limits.

3.???? ?? Ship Leasing Tax Exemption: Tax exemptions for ship leasing are being introduced, mirroring the incentives available for aircraft leasing, to attract investments in the maritime sector through IFSC.

4.???? ?? Treasury Centre Tax Rationalisation: Intra-group loans & advances will no longer be treated as ‘deemed dividends’ for IFSC-based treasury centres, further cementing IFSC’s role in global corporate treasury management.

5.???? ?? Simplified Fund Manager Regime: Amendments to Section 9A will streamline the process for IFSC-based fund managers, making it easier to manage funds across borders and enhancing IFSC’s competitiveness in the global fund management market.

6.???? ?? Tax Exemption for OTC Derivatives: The tax exemption under Section 10(4E) now includes income from NDFs, ODIs, and OTC derivatives traded with FPIs. This will boost liquidity and strengthen the P-Note market in IFSC exchanges.

7.???? ?? Retail Schemes & ETFs Added to Relocation Tax Scheme: The tax-neutral regime has been expanded to include retail schemes and ETFs, encouraging fund managers and investors to relocate assets to IFSC.

?? Transfer Pricing | Rationalisation of TP assessments: Taxpayers will now have the option to select a block of 3 years for ALP and apply ALP for 2 consecutive years, simplifying compliance.

?? Personal Taxation Highlights

1.???? ?? Rebate and Marginal Relief Extended: Rebate and marginal relief has been extended from ?7 Lakhs to ?12 Lakhs for individuals and HUFs. Tax slab rationalisation offers substantial benefits, including savings of up to ?1,14,400 on taxable income of ?24 Lakhs.

2.???? ?? Increased Monetary Limits for Perquisites: Limits for calculating perquisites related to amenities and benefits, including overseas medical travel, will be increased.

3.???? ?? Annual Value of Self-Occupied Properties: From April 1, 2025 (AY 2025-26), the annual value of two self-occupied properties will be considered as Nil, irrespective of the reasons for non-occupation.

4.???? ?? NSS Withdrawals Exempt: Withdrawals from the National Savings Scheme (NSS) made on or after August 29, 2024, will be exempt from tax on deposits made before 10.04.1992 and interest accrued.

5.???? ?? NPS Benefits Extended: Section 80CCD benefits will now be extended to NPS Vatsalya (for minors), with a deduction limit of ?50,000 and exemption in case of the minor’s death or for partial withdrawals for specified purposes like education, treatment, and disability.

???? Other Noteworthy Proposals

1.???? ?? LTCG on Business Trusts: Long-term capital gains from REITs, InvITs, and other business trusts on listed equity shares and units will be taxed at 12.5%.

2.???? ??? Extension of Start-Up Tax Holiday: Eligibility for tax holidays under Section 80-IAC for start-ups has been extended until March 31, 2030.

3.???? ?? Tax Loss Evergreening: Tax loss evergreening under sections 72A and 72AA through amalgamation will now be restricted to eight years from the year of loss, in the hands of the original predecessor entity.

4.???? ?? Penalty Time Limits Rationalised: Time limit for imposition of penalty u/s 275 rationalised to 6 months from the end of the Qtr in which the connected appeal attains finality (upto ITAT level). Further, time limit to apply for immunity u/s 270AA from penalty and prosecution increased from 1 month to 3 months.

5.???? ?? Updated Return Filing Timelines: Updated return filing timelines extended from 24 months to 48 months with period based for additional tax rates (w.e.f from 01 April 2025):

a.???? 25% if filed within 12 months;

b.???? 50% for period from 12 months to 24 months;

c.????? 60% for period from 24 months to 36 months;

d.???? 70% for period from 36 months to 48 months.

e.???? Further cases where notice for initiate reassessment proceedings issued after 36 months shall not be eligible for filing update return unless such reassessment proceedings are dropped.

6.???? ?? Tonnage Tax Regime Extended: The tonnage tax regime has now been extended to inland vessels under the Inland Vessels Act, 2021.?

??? TDS & TCS Thresholds:

1.???? ? Omission of Sections 206AB and 206CCA: These provisions will be omitted, effective from April 1, 2025.

2.???? ?? TCS Threshold for Foreign Remittances: The TCS threshold for foreign remittances has been increased from ?7 Lakhs to ?10 Lakhs. There will be no TCS on remittances from loans obtained for education purposes from specified financial institutions.

3.???? ?? TDS on Rent Increased: The TDS threshold under Section 194-I for rent has been increased to ?6 Lakhs (previously ?2.4 Lakhs).

4.???? ?? Rationalisation of TDS Provisions: The threshold for the applicability of TDS has been increased across various sections (e.g., 193, 194A, 194J, 194, 194H, etc.).

5.???? ?? TCS Prosecution Alignment: TCS prosecution provisions will now align with TDS, where no prosecution will occur if TCS is deposited within the prescribed time for filing quarterly TCS statements.

6.???? ?? No TCS on Sale of Specified Goods: TCS will not apply to the sale of specified goods, though TDS provisions under Section 194Q will continue to apply.

Trust the above shall be useful.

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