Summary of Key Proposals – DIRECT TAXATION
1. Revised Tax Rates under Section 115BAC (Effective from AY 2026-27):
The government has proposed new tax slabs under the default tax regime as follows:
| Total Income Range (Rs.) | Tax Rate |
| Up to Rs. 4,00,000 | Nil |
| Rs. 4,00,001 to Rs. 8,00,000 | 5% |
| Rs. 8,00,001 to Rs. 12,00,000 | 10% |
| Rs. 12,00,001 to Rs. 16,00,000 | 15% |
| Rs. 16,00,001 to Rs. 20,00,000 | 20% |
| Rs. 20,00,001 to Rs. 24,00,000 | 25% |
| Above Rs. 24,00,000 | 30% |
Also, the rebate under Section 87A for the default tax regime has been increased from Rs. 25,000 to Rs. 60,000, applicable to taxable income up to Rs. 12,00,000. However, it is important to note that this rebate does not apply to incomes taxed at special rates, such as capital gains under Sections 111A and 112.
Below are the calculations for easy reference:
| Income | Tax on Slabs and Rates (Present) | Tax on Slabs and Rates (Proposed) | Benefit of Rate/Slab | Rebate Benefit (Full up to Rs 12 lakhs) | Total Benefit | Tax after Rebate Benefit |
| 8 lakh | 30,000 | 20,000 | 10,000 | 20,000 | 30,000 | – |
| 9 lakh | 40,000 | 30,000 | 10,000 | 30,000 | 40,000 | – |
| 10 lakh | 50,000 | 40,000 | 10,000 | 40,000 | 50,000 | – |
| 11 lakh | 65,000 | 50,000 | 15,000 | 50,000 | 65,000 | – |
| 12 lakh | 80,000 | 60,000 | 20,000 | 60,000 | 80,000 | – |
| 16 lakh | 1,70,000 | 1,20,000 | 50,000 | – | 50,000 | 1,20,000 |
| 20 lakh | 2,90,000 | 2,00,000 | 90,000 | – | 90,000 | 2,00,000 |
| 24 lakh | 4,10,000 | 3,00,000 | 1,10,000 | – | 1,10,000 | 3,00,000 |
| 50 lakh | 11,90,000 | 10,80,000 | 1,10,000 | – | 1,10,000 | 10,80,000 |
2. Presumptive Taxation Scheme for Non-Residents in Electronics Manufacturing (Effective from AY 2026-27):
A new section 44BBD introduced as Scheme of presumptive taxation for non-residents providing services or technology to Indian companies establishing electronics manufacturing facilities. Under this scheme, 25% of the payments received by non-residents will be deemed as profits, leading to an effective tax rate of under 10%.
3. Extension of Tonnage Tax Scheme to Inland Vessels (Effective from AY 2026-27):
The benefits of the tonnage tax scheme are extended to inland vessels registered under the Inland Vessels Act, 2021. These vessels will now be classified as qualified ships under section 115VD, making them eligible for the scheme.
4. Extended Registration Validity for Smaller Trusts (Effective from April 1, 2025):
For trusts or institutions with total income not exceeding Rs. 5 crores (before applying sections 11 and 12) in each of the two preceding years, the registration validity under Section 12AB is extended from 5 years to 10 years, reducing compliance burdens for smaller entities.
5. Clarification on Non-Resident Transactions (Effective from April 1, 2026):
It is clarified that non-residents’ activities in India limited to purchasing goods for export will not constitute a significant economic presence in India.
6. Extended Tax Benefits for Start-ups (Effective from April 1, 2025):
The deadline for tax benefits under Section 80-IAC is extended to include start-ups incorporated before April 1, 2030, providing a longer window for new start-ups to avail these benefits.
7. Amendment to Taxation of Foreign Institutional Investors (Effective from AY 2026-27):
Long-term capital gains from the transfer of securities (excluding certain units) by Foreign Institutional Investors will be taxed at 12.5%, as per the proposed amendment to Section 115AD.
8. Rationalization of TDS Thresholds (Effective from April 1, 2025):
| Sl. No | Section | Current Threshold | Proposed Threshold |
| 1 | 193 – Interest on securities | Nil | Rs. 10,000/- |
| 2 | 194A – Interest other than Interest on securities | (i) Rs. 50,000/- for senior citizen; (ii) Rs. 40,000/- in case of others when payer is bank, cooperative society and post office; (iii) Rs. 5,000/- in other cases |
(i) Rs. 1,00,000/- for senior citizen; (ii) Rs. 50,000/- in case of others when payer is bank, cooperative society and post office; (iii) Rs. 10,000/- in other cases |
| 3 | 194 – Dividend for an individual shareholder | Rs. 5,000/- | Rs. 10,000/- |
| 4 | 194K – Income in respect of units of a mutual fund or specified company or undertaking | Rs. 5,000/- | Rs. 10,000/- |
| 5 | 194B – Winnings from lottery, crossword puzzle, etc. | Aggregate of amounts exceeding Rs. 10,000/- during the financial year | Rs. 10,000/- in respect of a single transaction |
| 6 | 194BB – Winnings from horse race | ||
| 7 | 194D – Insurance commission | Rs. 15,000/- | Rs. 20,000/- |
| 8 | 194G – Income by way of commission, prize etc. on lottery tickets | Rs. 15,000/- | Rs. 20,000/- |
| 9 | 194H – Commission or brokerage | Rs. 15,000/- | Rs. 20,000/- |
| 10 | 194-I – Rent | Rs. 2,40,000/- during the financial year | Rs. 50,000/- per month or part of a month |
| 11 | 194J – Fee for professional or technical services | Rs. 30,000/- | Rs. 50,000/- |
| 12 | 194LA – Income by way of enhanced compensation | Rs. 2,50,000/- | Rs. 5,00,000/- |
9. Amendments to Tax Collected at Source (TCS) Provisions (Effective from April 1, 2025):
- TCS under section 206C(1) will now apply to forest produce (excluding timber or tendu leaves) obtained under a forest lease, with a TCS rate of 2% for timber and other forest produce under such a lease. Timber obtained by other means will also attract a 2% TCS rate.
- The Threshold to collect Tax Collected at Source (TCS) under section 206C(1G) on remittances under the RBI’s Liberalised Remittance Scheme (LRS) from Rs 7 lakh to Rs 10 lakh.
10. Exclusion of Certain Transactions from TCS (Effective from April 1, 2025):
Provisions of sub-section (1H) of section 206C, mandating TCS on the sale of goods, will not be applicable from April 1, 2025.
11. Omission of Sections 206AB and 206CCA (Effective from April 1, 2025):
Sections 206AB and 206CCA, which require higher rates of TDS and TCS for non-filers of income tax returns, are proposed to be omitted, simplifying the tax deduction and collection process.
12. Deduction for Contributions to NPS Vatsalya Accounts (Effective from April 1, 2026):
A deduction under Section 80CCD is now allowed for contributions up to Rs. 50,000 made to National Pension System (NPS) Vatsalya accounts for minors, encouraging savings for children’s future.
13. Simplification of Provisions for Self-Occupied Property (Effective from April 1, 2025):
The annual value of a house property will be considered nil if the owner occupies it for their residence or cannot occupy it due to other reasons, with the existing limit of two properties for this benefit remaining unchanged.
14. Extended Time-Limit for Filing Updated Returns (Effective from April 1, 2025):
The time-limit for filing an updated return is extended from 24 months to 48 months from the end of the relevant AY. Additional income tax rates for updated returns filed after 24 months will be 60% (within 36 months) and 70% (within 48 months) of the tax and interest payable.
15. Miscellaneous:
- Investment and Turnover limits for all MSMEs will be enhanced 2.5 and 2 times, respectively.
- A new Income Tax bill is scheduled to be introduced by the finance minister next week, aiming to further reform and simplify the tax structure.