Important Tax Changes to Keep in Mind Effective April 1, 2025

With the Implementation of the Finance Bill 2025 and the notification of the Finance Act 2025, some Income Tax changes will come into effect from Tuesday, April 1, 2025. These changes will be shown in the Income Tax Returns (ITR) for the Assessment Year 2026-27. Let us take a look at these changes.

Direct Taxes

Standard Deductions

Taxpayers can get a standard deduction of Rs.75,000. This means that salaried individuals earning up to Rs.12.75 lakh annually will pay zero tax under the new tax regime. However, they must still file the income tax return.

Rebate under Section 87A

From FY 2025-26 onward, taxpayers filing returns under the new tax regime can claim a rebate of up to Rs.60,000. However, under the old tax regime, taxpayers can only claim a rebate of up to Rs.12,500. Under the new tax regime, the limit of total income of the taxpayers to get a rebate under Section 87A is increased to Rs.12 lakh from Rs.7 lakh under Section 87A. Therefore, the tax liability for taxpayers earning up to Rs.12 lakh will be zero if they are opting for the new income tax regime.

Marginal Relief

Marginal relief will be available to individuals whose income (after all deductions) is more than Rs.12 lakh but up to Rs.12.70 lakh (Rs.12,70,587 after standard deductions). These individuals will be eligible for marginal relief, meaning they will pay only a small amount of tax equal to the income exceeding Rs.12 lakh. This ensures that their take-home income remains Rs.12 lakh. For example, if the total income is Rs. 12.10 lakh, then the tax liability would be Rs. 10,000.

As mentioned earlier, the maximum rebate available under this provision is Rs.60,000, which applies to taxpayers with an income of ₹12 lakh on which tax is payable as per the new tax slabs.

Increased Basic Exemption Limit under New Tax Regime

There are 7 slabs under the new tax regime.

The basic exemption is increased to Rs.4,00,000 from Rs.3,00,000. This means that the tax liability for individuals earning up to Rs.4 lakh will be zero. The maximum rate is only increased to income above Rs.24 lakh from Rs.15 lakh.

Indirect Taxes

Multi Factor Authentication (MFA)

It will be compulsory for all GST assessees to generate an e-way bill and e-invoice. Users will need to log in using credentials like username, password, and OTP for generating an E-way bill. All taxpayers must comply with this MFA requirement from April 1, 2025, to access the E-Way Bill portal.

Mandatory ISD Registration for Input Service Credit Distribution

Until now, businesses had the option to distribute common input tax credits either through the ISD mechanism or the cross-charge model.

From April 1, it will be compulsory for offices receiving tax invoices for input services (including RCM transactions) on behalf of distinct persons. They are required to get ISD (Input Service Distributor) registration. These offices will then need to distribute credit using the prescribed documents as per the GST framework.

Removing Equalisation Levy

From April 1, 2025, there will be no equalisation levy (EL). This is the digital tax on online advertisements. It is charged at 6% on the amount received or receivable by a non-resident company for online advertisement services. EL was levied on non-resident e-commerce operators in 2020.