Introduction
The Union Budget 2025-26 has introduced significant tax reforms aimed at boosting economic growth while ensuring ease of compliance for individuals and businesses. The key focus areas include income tax relief, GST rationalization, and incentives for MSMEs. Let’s break down the major tax updates and their impact.
Personal Income Tax Reforms
The budget brings notable relief for taxpayers, particularly senior citizens and property owners.
Key Changes:
- Higher Exemption Limits: The tax deduction limit for senior citizens has doubled from ₹50,000 to ₹1 lakh, increasing disposable income.
- TDS on Rent Revised: The threshold for TDS on rent increased from ₹2.4 lakh to ₹6 lakh, benefiting small landlords.
- Self-Occupied Property Benefits: Taxpayers can now claim benefits on two self-occupied properties instead of one.
- Updated ITR Filing Window Extended: Time to file updated tax returns extended to 4 years from 2 years, offering more flexibility for tax corrections.
GST Rationalization & Indirect Tax Reforms
The Budget 2025-26 introduces changes to simplify compliance and promote domestic manufacturing.
Major Updates:
- Rationalized Tariff Structure: Reduction of 7 tariff rates and simplified customs duties to lower costs for businesses importing goods.
- Time Limit for Tax Assessments: Fixed deadlines for provisional GST assessments bring clarity.
- GST Exemptions for Healthcare: 36 new life-saving drugs added to the GST-exempt list, reducing healthcare costs.
- Relief for Startups & MSMEs: Enhanced credit availability and ease of compliance encourage entrepreneurship.
Corporate Taxation & MSME Incentives
The budget introduces new measures to boost business investments and credit access, particularly benefiting MSMEs.
Key Measures:
- Higher MSME Investment Limits: Revised limits: Micro (₹2.5 Cr), Small (₹25 Cr), Medium (₹125 Cr), allowing more businesses to qualify as MSMEs and access tax benefits.
- Credit Guarantee Expansion: Credit cover for MSMEs doubled to ₹10 Cr, helping businesses secure funding.
- Focus Product Scheme: Incentives for footwear, leather, and toy sectors aim to create 22 lakh jobs and boost exports.
- Startup Tax Benefits Extended: Incorporation period for tax exemptions extended by 5 years.
Direct & Indirect Tax Reforms for the Digital Economy
With a growing digital economy, Budget 2025-26 has introduced tax reforms to support fintech, AI, and e-commerce businesses.
Significant Developments:
- Digital Tax Compliance: Centralized KYC registry & Grameen Credit Score framework introduced to simplify credit access for rural businesses.
- Facilitation of E-Commerce MSMEs: Special exemptions for online sellers under GST Composition Scheme enable small businesses to expand via digital platforms.
- Incentives for Fintech & AI Startups: ₹500 crore allocated for AI research & fintech infrastructure, positioning India as a leader in digital financial services.
Final Thoughts: How Should Taxpayers & Businesses Prepare?
The Budget 2025-26 signals India’s shift towards a simplified, inclusive tax regime. To maximize financial efficiency:
- For Individuals: Leverage new tax benefits on property, rent, and senior citizen deductions.
- For MSMEs: Utilize increased credit guarantees and sectoral incentives for business expansion.
- For Startups: Take advantage of extended tax benefits and investment-friendly policies.
- For Digital Businesses: Ensure compliance with updated GST rules for online platforms.