Key Changes in Income Tax by Finance Bill 2025

The Finance Bill, 2025, proposes several key changes in the Income Tax Act, 1961, to continue reforms in the direct tax system through tax reliefs, removing difficulties faced by taxpayers, and rationalizing¹ various provisions. Here are some of the key changes:

Extension of sunset dates for several tax concessions pertaining to IFSC: The sunset dates for commencement of operations of IFSC units for several tax concessions, or relocation of funds to IFSC, in clause (d) of sub-section (2) of section 80LA, clause (4D), clause (4F), clause (4H) of section 10 and clause (viiad) of section 47, is proposed to be extended to 31st day of March, 2030.
Exemption on life insurance policy from IFSC Insurance offices: Proceeds received on life insurance policy issued by IFSC insurance intermediary office shall be exempted without the condition related to the maximum premium payable on such policy.
Exemption to capital gains and dividend for ship leasing units in IFSC: The exemption in Clause (4H) of section 10 to non-residents or units of IFSC engaged in ship leasing on capital gains tax on transfer of equity shares of domestic companies being units of IFSC, engaged in ship leasing.
Rationalisation of definition of ‘dividend’ for treasury centres in IFSC: Any advance or loan between two group entities, where one of the group entity is a “Finance company” or a “Finance unit” in IFSC set up as a global or regional corporate treasury centre for undertaking treasury activities or treasury services and the ‘parent entity’ or ‘principal entity’ of such ‘group entity’ is listed on stock exchange in a country or territory outside India, other than the country or territory outside India as may be specified by the Board in this behalf, shall not be treated as ‘dividend’.
Simplified regime for fund managers based in IFSC: The condition at clause (c) of sub-section (3) of section 9A is rationalised for all the eligible investment funds whether or not their eligible fund managers are based in IFSC, by determining the aggregate participation or investment in the fund as on the 1st day of April and the 1st day of October of the previous year and in case the said condition at clause (c) is not satisfied on either of the said days, it shall be provided that it will satisfy the same condition within four months of the said days.
Amendment of Section 10 related to Exempt income of Non-Residents: The income of a non-resident on account of transfer of non-deliverable forward contracts or offshore derivative instruments or over the-counter derivatives, or distribution of income on offshore derivative instruments, entered into with Foreign Portfolio Investors being an IFSC unit shall also not be included in the total income subject to certain conditions as may be prescribed.
Inclusion of retail schemes and Exchange Traded Funds (ETFs) in the existing relocation regime of funds of IFSCA: The relocation of original funds to the resultant fund in the IFSC is a tax-neutral transaction.
Extension of date of making investment by Sovereign Wealth Funds, Pension Funds & others and rationalisation of tax exemptions: The date of investment under the said clause shall extended from 31st day of March, 2025 to 31st day of March, 2030.
Scheme of presumptive taxation extended for non-resident providing services for electronics manufacturing facility: 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.
Extension of benefits of tonnage tax scheme to inland vessels: Inland vessels registered under Inland Vessels Act, 2021 have been included in the section 115VD for being eligible to be a qualified ship.

Simplification of tax provisions for charitable trusts/institutions: The situations where the application for registration of trust or institution is not complete, shall not be treated as specified violation for the purpose of the said sub-section.
Rationalisation of persons specified under sub-section (3) of section 13 for trusts or institutions: Persons referred to in clause (b) of sub-section (3) of section 13, shall be any person whose total contribution to the trust or institution, during the relevant previous year exceeds one lakh rupees, or, in aggregate up to the end of the relevant previous year exceeds ten lakh rupees, as the case may be.
Rationalisation in taxation of Business trusts: The total income of a business trust shall be charged to tax at the maximum marginal rate, subject to the provisions of section 111A, section 112 as well as section 112A.
Harmonisation of Significant Economic Presence applicability with Business Connection: The transactions or activities of a non-resident in India which are confined to the purchase of goods in India for the purpose of export shall not constitute significant economic presence of such non-resident in India.
Bringing clarity in income on redemption of Unit Linked Insurance Policy: ULIPs to which exemption under clause (10D) of section 10 does not apply, is a capital asset [clause (14) of section 2]; the profit and gains from the redemption of ULIPs to which exemption under clause (10D) of section 10 does not apply, shall be charged to tax as capital gains [sub-section (1B) of section 45]; and ULIPs to which exemption under clause (10D) of section 10 does not apply, shall be included in the definition of equity oriented fund [clause (a) of Explanation to section 112A].
Amendment of Definition of ‘Capital Asset’: Any security held by investment funds referred to in Section 115UB which has invested in such security in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 would be treated as capital asset only so that any income arising from transfer of such security would be in the nature of capital gain.
Extension of timeline for tax benefits to start-ups: The benefit will be available to eligible start-ups incorporated before 01.04.2030.
Rationalisation of taxation of capital gains on transfer of capital assets by non-residents: Income-tax on the income by way of long-term capital gains on transfer of securities (other than units referred to in section 115AB) not referred to in section 112A, if any, included in the total income, shall be calculated at the rate of twelve and one-half per cent.
Rationalisation of tax deducted at source (TDS) rates: Certain rates of TDS are rationalized and the threshold limit for applicability of the TDS provisions is increased.¹
Definition of “forest produce” rationalised: “forest produce” shall have the same meaning as defined in any State Act for the time being in force, or in the Indian Forest Act, 1927.
Reduction in compliance burden by omission of TCS on sale of specified goods: Provisions of sub-section (1H) of section 206C of the Act will not be applicable from the 1st day of April, 2025.
Amendments proposed in provisions of Block assessment for search and requisition cases: The term “virtual digital asset” is added to the definition of “undisclosed income” for the purposes of Chapter XIV-B.
Non-applicability of Section 271AAB of the Act: Provisions of section 271AAB of the Act shall not be applicable to the assessee in whose case search has been initiated under section 132 on or after the 1st day of September, 2024.
Amendments proposed in sections 132 and 132B for rationalising provisions: The time limit for taking approval for retention shall be one month from end of the quarter in which the assessment or reassessment or recomputation order has been made.
Time limit to impose penalties rationalised: Any order imposing a penalty under Chapter XXI shall not be passed after the expiry of six months from the end of the quarter in which the connected proceedings are completed, or the order of appeal is received by the jurisdictional Principal Commissioner or Commissioner, or the order of revision is passed, or the notice for imposition of penalty is issued, as the case maybe.
Clarification regarding commencement date and the end date of the period stayed by the Court: The period commencing on the date on which stay was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal Commissioner or Commissioner (Approving panel in case of section 144BA of the Act) shall be excluded in computing the time limit for conclusion of the proceedings.
Rationalisation of provisions related to carry forward of losses in case of amalgamation: 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.
Rationalisation of transfer pricing provisions for carrying out multi-year arm’s length price determination: The ALP determined in relation to an international transaction or a specified domestic transaction for any previous year shall apply to the similar transaction for the two consecutive previous years immediately following such previous year.
Removal of higher TDS/TCS for non-filers of return of income: Section 206AB of the Act and section 206CCA of the Act are omitted.
Increase in the limits on the income of the employees for the purpose of calculating perquisites: The power to prescribe rules may be obtained to increase the limit on the gross total income of the employees so that the amenities and benefits received by such employees would be exempt from being treated as perquisites.
Deduction under section 80CCD for contributions made to NPS Vatsalya: A deduction to be allowed to the parent/guardian’s total income, of the amount paid or deposited in the account of any minor under the NPS to a maximum of Rs 50,000/- overall as mandated under sub-section (1B) of section 80CCD.
Exemption to withdrawals by Individuals from National Savings Scheme from taxation: Exemption to the withdrawals made by individuals from these deposits for which deduction was allowed, on or after 29th day of August, 2024.²
Annual value of the self-occupied property simplified: 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.
Obligation to furnish information in respect of crypto-asset: Any person, being a reporting entity, as may be prescribed, in respect of crypto asset, shall furnish information in respect of a transaction in such crypto asset in a statement, for such period, within such time, in such form and manner and to such income-tax authority, as may be prescribed.
Increasing time limit available to pass order under section 115VP: For application received under sub-section (1) on or after the 1st day of April, 2025, order under sub-section (3) shall be passed before the expiry of three months from the end of the quarter in which such application was received.
Excluding the period such as court stay etc. for calculating time limit to pass an order: Sub-section (7A) of section 206C of the Act is to be amended to provide that relevant provisions of section 153 of the Act would apply to the time limit prescribed in sub-section (7A) of section 206C of the Act.
Exemption from prosecution for delayed payment of TCS in certain cases: Prosecution shall not be instituted against a person covered under the said section, if the payment of the tax collected at source has been made to the credit of the Central Government at any time on or before the time prescribed for filing the quarterly statement under proviso to sub-section (3) of section 206C of the Act in respect of such payment.
Certain penalties to be imposed by the Assessing Officer: Penalties under sections 271C, 271CA, 271D, 271DA, 271DB and 271E of the Act shall be levied by the Assessing Officer in place of Joint Commissioner, subject to the provisions of sub-section (2) of section 274 of the Act.
Removing date restrictions on framing the schemes in certain cases: End date prescribed for notifying faceless schemes under sections 92CA, 144C, 253 and 255 of the Act may be omitted so as to provide that Central Government may issue directions beyond the cut-off date of 31st day of March, 2025, if required.
Extending the processing period of application seeking immunity from penalty and prosecution: The processing period to three months from the end of the month in which application for immunity is received by the Assessing Officer is extended.
Extending the time-limit to file the updated return: The time-limit to file the updated return from existing 24 months to 48 months from the end of relevant assessment year is extended.
Extension of exemption to Specified Undertaking of Unit Trust of India (SUUTI): No income-tax or any other tax shall be payable by the Administrator in relation to the specified undertaking for the period beginning on the appointed day and ending on the 31st day of March, 2027 in respect of any income, profits or gains derived, or any amount received in relation to the specified undertaking.