Finance Bill, 2025: Key Direct Tax Amendments and Reforms

Direct Tax Reforms: Major Takeaways from Budget 2025-26

A. Rates of Income-tax

1. Income Tax Rates for Assessment Year 2025-26

There are no changes in the tax rates for individuals, Hindu Undivided Families (HUFs), Association of Persons (AOPs), Body of Individuals (BOIs), Artificial Juridical Persons (AJPs), firms, cooperative societies, and companies. The rates provided in sections 115BAA, 115BAB, 115BAC, 115BAD, and 115BAE remain unchanged.

2. Tax Rates under Section 115BAC (Default Tax Regime)

As per sub-section (1A) of section 115BAC, the following tax rates will be applicable for individuals, HUFs, AOPs, BOIs, and AJPs:

Important Notes:

•  These rates apply unless the taxpayer opts out of the default tax regime under sub-section (6) of section 115BAC.

• The surcharge rates for individuals and HUFs remain unchanged at 10%, 15%, 25%, and 37% based on income slabs. However, for those opting for section 115BAC, the     highest surcharge is restricted to 25%.

B. Corporate Tax Rates

Surcharge for Companies:

  • 7% if income exceeds ₹1 crore but does not exceed ₹10 crore.

  • 12% if income exceeds ₹10 crore.

C. Tax on Co-operative Societies & Firms

• Co-operative Societies:

    • Up to ₹10,000 – 10%

    • ₹10,001 – ₹20,000 – 20%

    • Above ₹20,000 – 30%

• Firms & LLPs: Taxed at 30%

D. Tax Deduction at Source (TDS) Updates

  • TDS on insurance commission (under section 194D) is reduced from 5% to 2%, effective April 1, 2025.

  • Other TDS rates remain unchanged.

E. Health and Education Cess

A  4% Health and Education Cess is applicable on income-tax, including surcharge wherever applicable.

    • No Changes in Tax Rates for Individuals and Businesses!

    • TDS on Insurance Commission Reduced from 5% to 2%!

    • Surcharge for Those Opting for New Tax Regime Capped at 25%!