Direct Taxes

New Income Tax Act, 2025

• New Income Tax Act, 2025 will come into effect from April 1, 2026. 
• Simplified rules and redesigned forms will be notified shortly to ensure ordinary citizens can comply without difficulty.

Ease of Living for Individual Taxpayers

• TDS Reforms: Resident buyers purchasing immovable property from non-residents can now deduct tax using their PAN rather than obtaining a Tax Deduction and Collection Account Number (TAN).
• TCS Reductions: TCS for education and medical purposes under the Liberalized Remittance Scheme (LRS) is reduced from 5% to 2%.
• Foreign Asset Disclosure: A one-time, 6-month disclosure scheme is introduced for small taxpayers (students, tech employees, etc.) who failed to disclose foreign assets or income. By paying tax and an additional amount, they can gain immunity from prosecution. 

Corporate Tax and Business Incentives

• Minimum Alternate Tax (MAT):
  • The MAT rate is reduced from 15% to 14%.
  • MAT is proposed to be a "final tax," meaning no credit accumulation will occur after April 1, 2026.
  • Exemption from MAT is extended to all non-residents paying tax on a presumptive basis.
• Share Buybacks: Buyback of shares will now be taxed as Capital Gains in the hands of the shareholder.

IT Sector Support

• Services like software development and KPO are clubbed under "Information Technology Services" with a common safe harbour margin of 15.5%.
•  The threshold for availing safe harbour is increased from ₹300 crore to ₹2,000 crore.
• Data Centers: A tax holiday until 2047 is proposed for foreign companies providing cloud services globally using data center services procured in India.
• Unilateral  Advanced Pricing Agreement (APA) process for IT services is proposed to be fast-tracked with an endeavour to conclude it within two years, which can be extended by 6 months on taxpayer's request.
  • Integrated Proceedings: Assessment and penalty proceedings will be integrated into a common order to reduce multiplicity.

Rationalizing Penalties and Prosecution

• Interest on Penalty: Taxpayers will not be liable for interest on penalty amounts during the appeal period before the first appellate authority.

Capital Markets and Financial Assets

• Securities Transaction Tax (STT):
  • STT on Futures is raised to 0.05% (from 0.02%).
  • STT on Options premium is raised to 0.15% (from 0.1%).
• Sovereign Gold Bonds: Capital gains exemption is now restricted to bonds held by an individual from original issue continuously until redemption on maturity.
• Mutual Funds/Dividends: No deduction will be allowed for interest expenditure incurred in relation to dividend or mutual fund income.

Cooperatives

• Dividend Income: Inter-cooperative dividend income is allowed as a deduction under the new tax regime if distributed to members.
• Expanded Deductions: The deduction for supplying milk and vegetables is extended to cooperatives supplying cattle feed and cotton seed.

Other Key Measures

• Crypto-Assets: A penalty of ₹200 per day is introduced for non-furnishing of crypto-asset statements, and ₹50,000 for furnishing inaccurate information.
• Land Acquisition: Income from compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) is exempted for individuals  and HUFs.
• Tax Administration: Proposed to constitute a Joint Committee of Ministry of Corporate Affairs and Central Board of Direct Taxes for incorporating the requirements of Income Computation and Disclosure Standards (ICDS) in the Indian Accounting Standards (IndAS) itself.  
  • Separate accounting requirement based on ICDS will be done away with from the tax year 2027-28.