Budget 2025 has been positive and populist. Overall, the budget focuses on increase in spending power, boost and
upliftment to various sectors, ease in doing business (with emphasis on trust based regulatory framework) and of course, bringing in some much-needed respite to the middle-class taxpayers. It aims to initiate transformative reforms across various domains including taxation, power, financial sector. Set out below is a brief snapshot of the key takeaways from the budget. For a more detailed reading of the key direct tax proposals, please refer to the annex below.
Introduction of New Income Tax Bill expected soon
Relief to individual tax-payers
•New slab rates & tax rates – no tax payable for income upto INR 4 lacs.
•30% tax slab now applicable on income more than INR 24 lacs (as opposed to current threshold of
•Rebate threshold increased from INR 7 lac to INR 12 lacs.
Multi-year allowability of ALP determination
• Assessment to be carried out for a block period in case of similar transactions.
• Arms length price (ALP) determination for similar transaction for 1 year shall apply for next 2
•However, onus on taxpayer to opt for 3 year block assessment which may not reduce administrative
No more TCS on sale of goods
• Proposal to deem 25% of the aggregate amount received / receivable by the non-resident, on account
of provision of services to domestic electronics manufacturing facility, shall be considered as profits
and gains of the non-resident and taxable accordingly
Presumptive tax for Non Residents for electronics manufacturing facility
Extension of sunset date for start-up
• Sunset date to take claim deduction of an amount equal to 100% of the profits and gains derived for
three consecutive assessment years out of ten years has been extended from April 1, 2025 to April 1,
2030 i.e., the benefit will available to start-ups which are incorporated prior to April 1, 2030.
Rationalisation of withholding tax rates and thresholding limits
• Increase in threshold limits has been introduced in a number of provisions.
• Rationalisation in rate has been brought in for income payable by a securitisation trust to an
individual or to a Hindu Undivided Family (HUF).
Foreign Direct Investment
•100% of foreign direct investment in insurance with expected relaxations on FDI linked
•New scheme for women, scheduled caste and scheduled tribe first time entrepreneurs wherein they
can avail of a loan upto INR 2 crores.
• Ease in effecting mergers and amalgamations expected.
• Review and overhaul expected of non-financial sector regulations, licenses and registrations.
• Further decriminalization of provisions under Jan Vishwas Bill 2.0.
|
| The Budget has provided substantial tax relief under the new tax regime available to individuals, Hindu Undivided Family (HUFs) and certain other persons with new slabs and tax rates. Under the new tax regime, no tax is payable for income up to INR 4 lacs, with slab rates increasing progressively and the 30% tax being applicable on income of more that INR 24 lacs as opposed to the current INR 15 lacs. The Budget also proposes to increase the limit of total income for rebate from the current INR 7 lacs to INR 12 lacs. Further, it has clarified that the rebate of income tax will not be available for incomes chargeable at special rates. This is in line with the Government’s vision to bring relief to middle class income tax payers.
|
Multi-year allowability of ALP determination | One of the most significant changes made by the Budget is the rationalising of transfer pricing provisions for carrying out determination of the Arm’s Length Price (ALP). The provisions provide for carrying out transfer pricing assessment for a block period in cases of similar transactions. As per the proposed amendments, the ALP determined in relation to an international transaction or a specified domestic transaction for a year shall apply to similar transactions for two consecutive years immediately following such year. While the objective of these proposals is to streamline the process of transfer pricing and to provide an alternative to yearly examination, the onus has been put on the taxpayer to opt for a 3 year block assessment period and does not provide for the Transfer Pricing Officer to assess three consecutive years at one time. Whether putting the burden of choice on the taxpayer would lead to cutting down administrative burden and reduce litigation is only something that we will see once the provisions come into effect.
|
Presumptive taxation for Non-residents (NRs) for electronics manufacturing facility | In line with the FMs speech to support the domestic electronic equipment industry, the Finance Bill, 2025 (“Finance Bill”) proposes to to provide a presumptive taxation regime for nonresidents who provide services to a resident company that is establishing or operating an electronics manufacturing facility. Under the proposed section, 25% of the aggregate amount received / receivable by, or paid /payable to, the non-resident, on account of provision of services shall be considered as profits and gains of the non-resident and taxable accordingly. No set off of unabsorbed depreciation and brought forward loss shall be allowed to the nonresident taking benefit of the proposed provision.
|
No more TCS on sale of goods | With respect to sale of goods, there exists provisions for collecting tax at source (TCS) as well as deducted tax at source (TDS). While the TCS provisions provide that they shall not apply if tax has been withheld under any other provisions of the Act, it becomes difficult for the seller to check whether the buyer has ensured compliance with TDS deduction provision resulting in both TDS and TCS becoming applicable on the same transaction. This has been a cause of contention in transactions. The Finance Bill proposes to remove the concept of TCS on sale of goods for facilitating ease of doing business and to reduce compliance burden on the taxpayers.
|
Extension of sunset date for start-up | The ITA currently provides start-ups with an option to claim deduction of an amount equal to 100% of the profits and gains derived for three consecutive assessment years out of ten years, beginning from the year of incorporation and subject to conditions as provided in this regard. The sunset date to take benefit of this provision has been extended from April 1, 2025 to April 1, 2030 i.e., the benefit will available to start-ups which are incorporated prior to April 1, 2030.
|
Rationalisation of withholding tax rates and thresholding limits | Furthering the objective of simplifying the tax regime and the provisions, the Finance Bill proposes to rationalise certain rates of Tax Deducted at Source (TDS) and increase threshold limits for applicability of TDS provisions. The rationalisation with respect to increase in threshold limits has been brought in a number of provisions, such as interest on securities, dividend for an individual shareholder, insurance commission, fees for professional or technical services, etc. The rationalisation in rate has been brought in for income payable by a securitisation trust to an individual or to a Hindu Undivided Family (HUF) from 25% and 30% to 10%.
|
Harmonisation of Significant Economic Presence (SEP) applicability with Business Connection | Income of a non-resident accruing or arising through or from any business connection in India is deemed to accrue or arise in India under Section 9 of the ITA. However, no income shall be deemed to accrue or arise in India to a non-resident through or from operations which are confined to the purchase of goods in India for the purpose of export. Significant Economic Presence (SEP) of a non-resident in India is considered as a ‘business connection’ in India and SEP has been defined to mean, inter alia, transaction in respect of any goods carried out by a non-resident with any person in India. Considering the definition of SEP, there was apprehension that exemption available to nonresidents whose business was confined to purchase of goods in India for the purpose of export would come within the ambit of SEP and be considered to have a business connection in India. In order to remove the confusion, the definition of SEP has been proposed to be amended to not include transactions or activities of a non-resident in India which are confined to the purchase of goods in India for the purpose of export.
|
Rationalisation of tax exemptions for Sovereign Wealth Funds (SWFs) / Pension Funds (PFs) | Finance Act (No. 2) of 2024 had inserted a new provision (Section 50AA of the ITA) whereby capital gains from unlisted debt securities were re-classified as short-term capital gains, irrespective of the period of holding. Considering SWFs and PFs investment in infrastructure projects are generally made through unlisted debt securities, the amendment resulted in tax in their hands which would otherwise be exempt on the fulfilment of conditions as laid out. Considering this issue, the Budget has proposed to amend Section 10(23FE) to provide that long-term capital gains (irrespective of whether they are deemed as short-term capital gains under the new provision) will not be included in total income of SWFs / PFs as notified under the ITA. Further, considering the long term nature of the investment required in this sector, the sunset date for making investment (in order to claim the exemption) has been extended from March 31, 2025 to March 31, 2030. This clarity is welcomed as the earlier amendment had raised concerns on taxation of SWFs / PFs who have been historically exempt from tax upon fulfilment of the conditions laid down.
|
Rationalisation of taxation of capital gains on transfer of capital assets by FIIs | Finance Act (No. 2) of 2024 had amended the rate of taxation of long-term gains arising from transfer of a capital asset to 12.5% from the earlier 10% non-residents as well as residents. However, the provisions relating to taxation of Foreign Institutional Investors (FIIs) from sale of securities (other than units referred to in Section 115AB of the ITA) continued to be taxed at the 10% rate. In order to bring parity within the rates, the Finance Bill proposes to amend the rate for longterm securities (other than units referred to in Section 115AB of the ITA) and not referred to in Section 112A of the ITA held by FIIs to be calculated at the rate of 12.5%.
|
| In order to characterise income arising from transaction in securities as to whether it is capital gain or business income for investment funds, the Finance Bill proposes to amend the definition of capital asset to provide that any security held by investment funds which has invested in such security in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 would be treated as capital asset only so that any income arising from transfer of such security would be in the nature of capital gain. |
