Tax Rate Under the Old Tax Regime

Change in 87A rebate:

1. Rebate under section 87A for individual resident opting new tax regime has been increased from Rs.25,000 to Rs.60,000. Resulting in Nil tax payable for individuals earning income up-to Rs.12,00,000.
2. The rebate of income-tax is not available on tax on incomes chargeable at special rates (e.g., Capital gain u/s 111A, 112, etc.). Even if the total income is less than Rs.12,00,000 but includes income which are chargeable to tax at special rate, Individual must pay tax on such incomes which are charged at special rate and 87A rebate would not be available.

4% “Health and Education Cess on income-tax” will be levied on total income tax (Income Tax + Surcharge, if any)

• Scheme of presumptive taxation extended for non-resident providing services for electronics manufacturing facility:
  
  

New section 44BBD: Proposed to provide a presumptive taxation regime for non-residents engaged in the business of providing services or technology, to a resident company which are establishing or operating electronics manufacturing facility or a connected facility for manufacturing or producing electronic goods, article or thing in India, under a scheme notified by the Central Government in the Ministry of Electronics and Information Technology and satisfies such conditions as prescribed in the rules
Presumptive Profit or gains: 25% of gross receipt.

• Tax comparison under new tax regime, pre and post-tax rate revision in 2025 budget.

With revision in tax rate under new regime, the old tax regime would be beneficial only if the taxpayer has minimum exemption and deduction of Rs. 7.25 lakhs (salaried), Rs. 7 Lakhs (non-salaried).

• Period of registration of smaller trusts or institutions:

The validity of registration of small trust, with total income less than Rs. 5 crores, from 5 years to 10 years in cases where the trust or institution made an application under sub-clause (i) to (v) of the clause (ac) of sub-section (1) of

section 12A,

• Extension of timeline for tax benefits to start-ups

Eligible start-ups registered on or before 01-04-2025 were eligible for tax benefit under section 80IAC is now being extended for all eligible start-ups registered on or before01-04-2030.

Tax exemption: – 100% tax exemption eligible start-up for three consecutive assessment years out of ten years, beginning from the year of incorporation, at the option of the assessee subject to the condition.

• Rationalisation of taxation of capital gains on transfer of capital assets by non-residents:

It is proposed to amend the provisions of section 115AD to provide that income-tax on the ‘Income by way of short-term or long-term capital gains arising from the transfer of such.

Securities not referred to in section 112A, if any, included in the total income of specified fund or Foreign Institutional Investor is increased from 10% to 12.5%.

• Rationalization of tax deducted at source (TDS) rates:

       ⦁ TDS rate reduction for section 194LBC

TDS on income is payable by a securitisation trust to an investor, being a resident, in respect of an investment in a securitisation trust as specified therein, the person responsible for making the payment shall, deduct income-tax, at the rate of 25%, if the payee is an individual or a Hindu undivided family and 30%, if the payee is any other person.

The TDS rate under section 194LBC has been reduced from 25%/30% to 10%.

      ⦁ TCS rate reduction for section 206C

Under sub-section (1) of section 206C of the Act, presently TCS at 2.5 per cent is required to be collected on sale of goods of the following nature: –

• Reduction in compliance burden by omission of TCS u/s 206C(1H) :

any person being a seller who receives consideration for sale of any goods of the value or aggregate of value exceeding Rs 50 lakhs in any previous year, to collect tax from the buyer at the rate of 0.1% of the sale consideration exceeding Rs. 50 lakhs is omitted

• TDS threshold rationalization

• Rationalisation of provisions related to carry forward of losses in case of amalgamation:

Section 72A and 72AA of the Act provide provisions relating to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in cases of amalgamation or business reorganization as specified therein.

In order to bring clarity and parity with the provisions of section 72 of the Act, it is proposed to amend section 72A and section 72AA of the Act to provide that any loss forming part of the accumulated loss of the predecessor entity, which is deemed to be the loss of the successor entity, shall be eligible to be carried forward for not more than eight assessment years immediately succeeding the assessment year for which such loss was first computed for original predecessor entity.

• Removal of higher TDS/TCS for non-filers of return of income:

Section 206AB of the Act, requires deduction of tax at higher rate when the deductee specified therein is a non-filer of income-tax return. Section 206CCA of the Act, requires for collection of tax at higher rate when the collectee specified therein is a non-filer of income-tax return. It is proposed to omit section 206AB.

• Deduction u/s 80CCD(1B) is extended to contributions made to the NPS Vatsalya accounts subject to maximum deduction of Rs.50,000/-
•  Exemption to withdrawals by Individuals from National Savings Scheme from taxation.
•  Annual value of the self-occupied property simplified:

In order to simplify the provision of section 23 – it is proposed to amend the section 23(2) so as to provide that “The annual value of the property consisting of a house or any part thereof shall be taken as nil, if the owner occupies it for his own residence or cannot actually occupy it due to any reason”,

Previously it was worded as ‘where house property is in the occupation of the owner for the purposes of his residence or owner cannot actually occupy it due to his employment, business or profession carried on at any other place, in such cases, the annual value of such house property shall be taken to be nil’

Further, sub-section (4) of the said section provides that provisions of sub-section (2) of the Act will be applicable in respect of two-house properties only, which are to be specified by the owner.

• Extending the time-limit to file the updated return

Proposed to extend the time-limit to file the updated return from existing 24 months to 48 months from the end of relevant assessment year.

Note: Rate of additional income-tax payable for updated return

• Proposed Amendments in Transfer Pricing Regulations:

• Voluntary Option for Taxpayers: The taxpayer must opt for the multi-year ALP determination by following prescribed rules and timelines.
•  Approval by TPO: The TPO must approve the multi-year ALP option. This approval process will happen within one month of exercising the option
• ALP Valid for Three Years: Once the ALP is determined for the first year, it will apply to the same transaction in the following two years.
• TPO’s Review and Reassessment: Although the ALP will remain valid for three years, the TPO will still review the transactions for the subsequent years. The Assessing Officer (AO) will recompute the total income based on the multi-year ALP, reducing the need for fresh assessments. Once validated, no further reference to the TPO is required for those two years, and the AO recomputes the total income based on the established ALP. Crucially, the legislation clarifies that once a valid option is exercised, no further reference for the same transaction can be made.

Benefits of the Proposal

One of the most significant benefits of this proposal is the reduction in the administrative burden on both businesses and tax authorities. In many cases, international transactions involve repeated dealings with the same related entities under similar conditions. By allowing the use of an existing ALP for multiple years, the proposal eliminates the need for repetitive transfer pricing assessments, which are often redundant.

The introduction of this system aligns with India’s aim to modernize its tax administration and provide a more business-friendly environment, especially as the country seeks to enhance its position in global markets.

Caveats of the Proposal

While the multi-year ALP determination simplifies the process, it does carry some potential risks for taxpayers. If a company opts for a three-year block assessment and the TPO adopts an aggressive stance, the company could face increased tax liabilities across all three years. This is because the tax authorities will apply the ALP determined in the first year to all three years, leaving the taxpayer exposed to greater scrutiny and potential tax demands.

Conversely, in the current system of annual assessments, there is a possibility that only one year would be scrutinized as there is a chance that other years might not be reviewed, providing a level of protection for the taxpayer and mitigating this risk. This potential downside might make some taxpayers hesitant to opt for the block assessment.

What Remains Unchanged: Ongoing Compliance Requirements

Despite these changes, certain compliance requirements will remain unchanged. For example, the filing of Form 3CEB (prescribed under Section 92E), conducting TP studies, benchmarking analysis, FAR (Functional, Asset, Risk) analysis, and preparing the Master File and Country-by-Country Reporting (CBCR) will still be required. These forms and analyses serve as the foundation for transfer pricing assessments and will not be waived by the introduction of block assessments. As such, businesses will still need to maintain the necessary documentation and comply with the ongoing reporting requirements.

Implementation Timeline

The amendments to Section 92CA and related changes are expected to come into effect from April 1, 2026, applicable to the assessment year 2026-27 and onwards. The rules for block assessment and related procedures will be subject to further guidelines, which the government may issue to address practical issues and ensure smooth implementation.

Expansion of Safe Harbour Rules

Alongside the multi-year ALP determination proposal, there is also an expansion of the Safe Harbour rules. These rules provide taxpayers with a level of certainty by offering predefined conditions under which transfer pricing is considered acceptable by the tax authorities. With more detailed and clearer Safe Harbour provisions, businesses can benefit from reduced risk of disputes, further contributing to a more predictable tax environment.