Union Budget 2025-26 (Full) + Finance Bill, 2025

MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2025

(Clauses referred to are clauses in the Bill)

GOVERNMENT OF INDIA

FINANCE BILL, 2025

PROVISIONS RELATING TO

DIRECT TAXES

Introduction

The provisions of Finance Bill, 2025 (hereafter referred to as "the Bill"), relating to direct taxes seek to amend the Income-tax Act, 1961 (hereafter referred to as 'the Act'), to continue reforms in direct tax system through tax reliefs, removing difficulties faced by taxpayers and rationalisation of various provisions. The Bill also seeks to amend the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 [UTI Repeal Act, 2002].

With a view to achieving the above, the various proposals for amendments are organized under the following heads:—

(A) Rates of income-tax;

(B) Measures to promote investment and employment;

(C) Simplification and Rationalisation;

(D) Socio economic welfare measures

(E) Tax administration;

DIRECT TAXES

Introduction

The provisions of Finance Bill, 2025 (hereafter referred to as "the Bill"), relating to direct taxes seek to amend the Income-tax Act, 1961 (hereafter referred to as 'the Act'), to continue reforms in direct tax system through tax reliefs, removing difficulties faced by taxpayers and rationalisation of various provisions. The Bill also seeks to amend the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 [UTI Repeal Act, 2002].

With a view to achieving the above, the various proposals for amendments are organized under the following heads:—

(A) Rates of income-tax;

(B) Measures to promote investment and employment;

(C) Simplification and Rationalisation;

(D) Socio economic welfare measures

(E) Tax administration;

DIRECT TAXES

A. RATES OF INCOME-TAX

I. Rates of income-tax in respect of income liable to tax for the assessment year 2025-26.

In respect of income of all categories of assessees liable to tax for the assessment year 2025-26, the rates of income-tax have either been specified in specific sections of the Act (like section 115BAA or section 115BAB for domestic companies, section 115BAC for individual/HUF/AOP (other than a co-operative society)/BOI/AJP and section 115BAD or section 115BAE for cooperative societies) or have been specified in Part I of the First Schedule to the Bill. There is no change proposed in tax rates either in these specific sections or in the First Schedule. The rates provided in sections 115BAA or 115BAB or 115BAC or 115BAD or 115BAE of the Act for the assessment year 2025-26 would be same as already enacted. Similarly rates laid down in Part III of the First Schedule to the Finance (No. 2) Act, 2024, for the purposes of computation of “advance tax”, deduction of tax at source from  “Salaries” and charging of tax payable in certain cases for the assessment year 2025-26 would now become Part I of the First Schedule. Part III would now apply for the assessment year 2026-27.

Tax rates under section 115BAC—

For assessment year 2025-26, as per the provisions of sub-section (1A) of section 115BAC of the Act, an individual or Hindu undivided family or association of persons [other than a co-operative society], or body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2, has to pay tax in respect of the total income at following rates:

Sl. No.	Total income	Rate of tax
(1)	(2)	(3)
1.	Upto Rs. 3,00,000	Nil
2.	From Rs. 3,00,001 to Rs. 7,00,000	5%
3.	From Rs. 7,00,001 to Rs. 10,00,000	10%
4.	From Rs. 10,00,001 to Rs. 12,00,000	15%
5.	From Rs. 12,00,001 to Rs. 15,00,000	20%
6.	Above Rs. 15,00,000	30%

2. The above mentioned rates shall apply, unless an option is exercised as per provisions of subsection (6) of section 115BAC. Thus, rates specified in sub-section (1A) of section 115BAC of the Act are the default rates.

3. In respect of income chargeable to tax under clause (ii) of sub-section (1A) of section 115BAC of the Act, the income-tax for the assessment year 2025-26 shall be increased by a surcharge, for the purposes of the Union, computed, in the case of every individual or Hindu undivided family or association of persons, or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Act,-

(i) having a total income (including the income by way of dividend or income under the provisions of section 111A, section 112 and section 112A of the Act) exceeding fifty lakh rupees but not exceeding one crore rupees, at the rate of 10% of such income-tax;

(ii) having a total income (including the income by way of dividend or income under the provisions of section 111A, section 112 and section 112A of the Act) exceeding one crore rupees but not exceeding two crore rupees, at the rate of 15% of such income-tax;

(iii) having a total income (excluding the income by way of dividend or income under the provisions of section 111A, section 112 and section 112A of the Act) exceeding two crore rupees, at the rate of 25% of such income-tax;

(iv) having a total income (including the income by way of dividend or income under the provisions of section 111A, section 112 and section 112A of the Act) exceeding two crore rupees, but is not covered under clause (iii) above, at the rate of 15% of such income-tax;

3.1 In case where the provisions of sub-section (1A) of section 115BAC are applicable and the total income includes any income by way of dividend or income under the provisions of section 111A, section 112 and section 112A of the Act, the rate of surcharge on the income-tax in respect of that part of income shall not exceed 15%.

3.2 Further, in the case of an association of persons consisting of only companies as its members, and having its income chargeable to tax under sub-section (1A) of section 115BAC, the rate of surcharge on the income-tax shall not exceed 15%.

3.3 Marginal relief shall be provided in such cases.

 

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Full Text:

Union Budget 2025-26 (Full) + Finance Bill, 2025

Section 115BAC tax regime retained as default; surcharge tiers and caps specified, with marginal relief safeguards. The Finance Bill, 2025 retains existing income-tax rates for assessment year 2025-26 and keeps special concessional regimes unchanged. Section 115BAC operates as the default regime for eligible individuals and similar entities unless an option is chosen, with prescribed slab rates applying. The Bill specifies tiered surcharge rates on tax under section 115BAC for higher incomes, caps surcharge on dividend and certain categorized income and for associations of companies, and provides marginal relief. Part III First Schedule provisions for advance tax and withholding are reallocated to Part I for 2025-26.