India’s income tax framework undergoes a structural reset from Wednesday, introducing a new law and tighter compliance rules affecting salaried individuals, traders, investors and frequent travellers.
The Income Tax Act, 1961 will be replaced by the Income Tax Act, 2025, aiming to simplify the code through fewer sections, clearer language and reduced ambiguity.
One important change is the removal of the dual terminology of “financial year” and “assessment year”. These will be replaced with a single concept: Tax year. For taxpayers, especially first-time filers, this reduces confusion around reporting and timelines.
Filing timelines
Return filing deadlines are largely unchanged for salaried individuals, but there is some flexibility for others:
Salaried taxpayers (ITR-1, ITR-2): July 31 remains the deadline
Non-audit cases (ITR-3, ITR-4): Deadline extended to August 31
Additionally, the window to file a revised return has been extended to 12 months– till March 31 of the following year. However, taxpayers filing after December 31 may face additional fees, indicating that the government is balancing flexibility with deterrence.
Higher compliance for claims
House Rent Allowance (HRA) claims will come under closer scrutiny. Taxpayers will now need to furnish:
- Landlord’s permanent account number (PAN)
- Proof of rent payment
- Full disclosure in certain cases
This signals a shift towards stricter verification and reduced scope for inflated or incorrect claims.
At the same time, the list of metro cities eligible for the higher 50 per cent HRA exemption has been expanded to include cities such as Bengaluru, Hyderabad, Pune and Ahmedabad, in addition to the traditional metros.
Salary perks see upward revision
Several employee benefits have been revised upward, particularly under the old tax regime:
Meal card exemption increased to Rs 200 per meal (from Rs 50)
Tax-free gift and voucher limit raised to Rs 15,000 annually
Children’s education allowance increased to Rs 3,000 per month per child
Hostel allowance raised to Rs 9,000 per month
These changes improve the tax efficiency of salary structures, although their actual benefit depends on whether taxpayers continue under the old regime.
Derivatives trading becomes costlier
For active traders, especially in futures and options (F&O), transaction costs will rise due to higher Securities Transaction Tax (STT):
Options premium: 0.1 per cent to 0.15 per cent
Options intrinsic value: 0.125 per cent to 0.15 per cent
Futures: 0.02 per cent to 0.05 per cent
This directly increases trading costs and could impact high-frequency or low-margin strategies.
Investment taxation: Key shifts
Several changes alter how different investment incomes are taxed:
Buybacks
Stock buybacks will now be taxed as capital gains instead of deemed dividends. This aligns taxation with how investors typically realise returns, though the effective tax rate will vary depending on holding period and investor category.
Sovereign Gold Bonds (SGBs)
Tax exemption on redemption will now apply only if bonds were purchased during the original issuance. Secondary market buyers will face capital gains tax on redemption, reducing the attractiveness of buying SGBs from the market.
Dividends and mutual funds
Taxpayers will no longer be allowed to claim interest expense deductions against dividend or mutual fund income, even if investments were funded through borrowed money.
Simpler TDS compliance, especially for investors
A notable procedural ease is the introduction of a single declaration mechanism for non-deduction of TDS across multiple income sources, such as dividends and mutual funds.
For property transactions involving non-resident Indians (NRIs), buyers can now deduct TDS using their PAN, eliminating the earlier requirement of obtaining a TAN. This reduces friction in cross-border property deals.
Foreign travel and remittances get cheaper upfront
Tax Collected at Source (TCS) on foreign travel has been significantly reduced:
Earlier: 5 per cent up to Rs 10 lakh, 20 per cent beyond
Now: TCS Flat 2 per cent
Similarly, remittances for education and medical treatment abroad will also attract a lower TCS rate of 2 per cent. While TCS is adjustable against final tax liability, the lower rate improves cash flow for individuals.
PAN rules tightened for high-value transactions
PAN requirements have been expanded and formalised:
Aadhaar-only PAN application route has been removed
New forms introduced based on applicant category
PAN mandatory for high-value transactions such as:
Cash deposits above Rs 10 lakh annually
Property purchases above Rs 20 lakh
Vehicle purchases above Rs 5 lakh
High-value hotel or event payments
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