Key Tax Changes After Budget 2025: What You Need to Know

The Union Budget 2025 has introduced several tax changes that will impact investors, taxpayers, and senior citizens. Here’s a simplified breakdown of the key updates:

ULIP Taxation Changes

The government has clarified that if the annual premium for Unit Linked Insurance Plans (ULIPs) exceeds ₹2.5 lakh, the redemption amount will be subject to capital gains tax. If held for more than a year, a 12.5% tax will apply, similar to equity mutual funds. Earlier, ULIP proceeds were tax-free under Section 10(10D) if the combined premium of all policies remained below ₹2.5 lakh per year.

Extended Deadline for Updated ITR Filing

Taxpayers now have up to 4 years instead of two to file an updated Income Tax Return (ITR). However, refunds or reductions in tax liability will be restricted. The tax payable for updated returns will be:

• 25% if filed within 1 year
• 50% if filed within 2 years
• 60% if filed within 3 years
• 70% if filed within 4 years

New Tax Benefits for NPS Vatsalya

The NPS Vatsalya scheme, designed to support dependents with disabilities, will now enjoy the same tax exemptions as regular NPS. Parents can claim an additional ₹50,000 tax deduction under the old tax regime.

Higher TDS Limits

The government has increased Tax Deducted at Source (TDS) thresholds:

• Senior citizens: Interest income exempted from TDS up to ₹1 lakh (previously ₹50,000)
• Non-senior citizens: Exempted up to ₹50,000 (previously ₹40,000)
• Rental income: TDS applicable only if annual rent exceeds ₹6 lakh (previously ₹2.4 lakh)
• Dividend income: TDS threshold raised from ₹5,000 to ₹10,000

Changes in TCS Limits

• The threshold for Tax Collected at Source (TCS) under the Liberalized Remittance Scheme (LRS) has been increased from ₹7 lakh to ₹10 lakh.
• No TCS will be charged on education-related remittances made using a loan from recognised financial institutions.

Tax Relief on Second Home

Previously, if you owned a second self-occupied home, the tax was charged based on deemed rental income. Now, you can own two self-occupied properties without any additional tax liability.

Tax Exemption for NSS Withdrawals

From August 29, 2024, all withdrawals from the National Savings Scheme (NSS) will be tax-free, including both the principal amount and interest earned on deposits where deductions were previously claimed.

Simplified KYC Process

The government will introduce a revamped Central KYC (Know Your Customer) system in 2025. This new framework will make KYC verification easier and more efficient, with periodic updates streamlined for users.

These tax changes aim to simplify compliance, offer greater flexibility, and provide more tax benefits for investors and taxpayers.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.