Income Tax Changes: What You Need to Know from July 1, 2025

The Indian income tax system will see major changes starting July 1, 2025. Many of these updates were revealed in Budget 2025 and relate to the Financial Year 2025-26 (Assessment Year 2026-27). Their real-world effects on taxpayers will begin soon.

Here’s a summary of the key income tax changes you should know about:

1. The New Tax Regime Takes Center Stage (and gets more attractive!)

The new tax regime (Section 115BAC) is already the default option. Budget 2025 has made it even more appealing for taxpayers, with important changes starting April 1, 2025 (FY 2025-26):

Revised Tax Slabs:

The new tax regime features updated tax slabs aimed at offering greater relief, especially to middle-income earners.

• Up to ₹4,00,000: Nil
• ₹4,00,001 to ₹8,00,000: 5%
• ₹8,00,001 to ₹12,00,000: 10%
• ₹12,00,001 to ₹16,00,000: 15%
• ₹16,00,001 to ₹20,00,000: 20%
• ₹20,00,001 to ₹24,00,000: 25%
• Above ₹24,00,001: 30%

Increased Tax Rebate under Section 87A:

The tax rebate under Section 87A has risen significantly to ₹60,000. This means individuals with a net taxable income of up to ₹12 lakh will pay no income tax under the new regime.

Increased Standard Deduction:

Salaried individuals opting for the new tax regime will now receive a standard deduction of ₹75,000 (up from ₹50,000). This raises the tax-free limit for salaried employees to ₹12.75 lakh.

Employer's Contribution to NPS (Tier-I):

The deduction for the employer's contribution to the NPS account has been raised to 14% (from 10%), providing more chances for tax savings.

Important Note: Though the new tax regime is the default, taxpayers without business income can still choose the old tax regime if it offers more benefits due to the deductions and exemptions available.

2. ITR Filing Deadline Extended!

Good news for taxpayers! The deadline for filing Income Tax Returns (ITR) for Assessment Year 2025-26 (related to Financial Year 2024-25) has been pushed back from July 31, 2025, to September 15, 2025. This gives individuals and businesses an extra 46 days to gather their financial documents and file their returns.

However, keep this in mind: Even with the extended filing deadline, any final or self-assessment tax owed must still be paid by July 31, 2025, to avoid interest and penalties.

3. Aadhaar is Now Mandatory for PAN Applications

Starting July 1, 2025, you must provide your Aadhaar number when applying for a new PAN card. This change aims to simplify the process, improve identity verification, and reduce the misuse of fake or duplicate PANs. Other forms of identity and address proof will no longer be accepted for new PAN applications.

4. Real-Time PAN-Bank Account Linking System Activated

The Income Tax portal has launched a real-time verification system for linking PAN and bank accounts using an API developed by NPCI. This change, effective June 17, 2025, is expected to speed up refund processing and reduce errors during e-filing. Make sure your PAN is correctly linked to your bank account to take advantage of this.

5. Updates to ITR Forms and Utilities

The ITR forms for Assessment Year 2025-26 have received essential updates to match the latest changes and simplify the filing process. This includes:

• ITR-1 / ITR-4: Now eligible for limited Long-Term Capital Gains (LTCG) up to ₹1.25 lakh, and includes a field for Aadhaar enrollment.
• ITR-2 / ITR-3: Requires separate reporting of capital gains split before and after July 23, 2024, and mandates disclosure of dividend income for share buyback gains.
• New ITR-U Form: This updated utility allows taxpayers to correct past returns (voluntary filing) following Budget 2025 provisions, with set eligibility, deadlines, and penalties.

6. The Broader Income Tax Bill 2025

While immediate changes are in effect, a new Income Tax Bill 2025 has also been introduced. This bill aims to replace the decade-old Income-tax Act, 1961. It proposes simpler tax rules and seeks to reduce disputes while creating a clearer framework. Key aspects include:

• Simplified Structure and Language: The new bill aims for a more organized framework with fewer sections and schedules for easier comprehension.
• Introduction of 'Tax Year': This unified 12-month period will replace the current financial year and assessment year system for clarity.
• Enhanced Digital Oversight: Tax authorities will have broader access to electronic records, including emails and social media accounts, during investigations, particularly regarding undisclosed income and virtual digital assets.
• Inclusion of Virtual Digital Assets (VDAs): The definition of undisclosed income now explicitly includes VDAs like cryptocurrencies and NFTs.

It’s important to remember that the provisions of the Income Tax Bill 2025 will only take effect after it is passed by both houses of Parliament and approved by the President.

What Should You Do?

With these important changes ahead, it’s vital for every taxpayer to:

• Stay Informed: Keep up to date with the latest announcements and notifications from the Income Tax Department.
• Assess Your Tax Regime: Carefully decide whether the new tax regime or the old tax regime is better for your income and deductions.
• Ensure Aadhaar-PAN Linkage: If you plan to apply for a new PAN, ensure your Aadhaar is ready.
• Organize Your Financial Documents: Use the extra time before the ITR deadline to gather all necessary documents for smooth filing.
• Consult a Professional: If you have complex income streams or are unsure about these changes, it’s wise to consult a tax advisor.

These income tax changes effective from July 1, 2025, are a big step toward a clearer and more efficient tax system in India. By understanding these updates, you can ensure compliance and make the most of your tax planning for the upcoming financial year.

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