Budget 2025-26: Sitaraman promises a simpler tax regime
03 Feb 2025

Finance minister Nirmala Sitaraman promised to continue efforts to simplify taxes, improve tax payer services, provide tax certainty and reduce litigation while keeping in mind the need to enhance revenues for funding the development and welfare schemes of the government.
The government, she pointed out, has already taken measures to simplify the tax regimes – both direct and indirect – simpler, without exemptions and deductions for corporate tax and personal income tax.
The government, she said, has been constantly trying to streamline and simplify taxation, adding that 58 per cent of corporate tax came from the simplified tax regime in financial year 2022-23.
Similarly, available data shows that two-thirds of individual taxpayers have opted for the new personal income tax regime.
Sitaraman proposed a comprehensive review of the Income-tax Act, 1961, with a view to make the Act concise, lucid, easy to read and understand. This, she said, will reduce disputes and litigation, thereby providing tax certainty to the tax payers. The review is expected to be completed in six months, she added.
Budget 2025-26 has already made a beginning with the Finance Bill by simplifying the tax regime for charities, TDS rate structure, provisions for reassessment and search provisions and capital gains taxation.
Accordingly, the two tax exemption regimes for charities are proposed to be merged into one. The 5 per cent TDS rate on most payments is being merged into the 2 per cent TDS rate and the 20 per cent TDS rate on repurchase of units by mutual funds or UTI is being withdrawn. TDS rate on e-commerce operators is proposed to be reduced from one to 0.1 per cent. Moreover, credit of TCS is proposed to be given in the TDS to be deducted on salary.
Further, it is proposed to decriminalise delay for payment of TDS up to the due date of filing statement for the same. It is also planned to have a standard operating procedure for TDS defaults as also simple and rational compounding norms for such defaults.
Also, under the revised provisions for reopening and reassessment, an assessment can be reopened beyond three years and up to five years from the end of the assessment year only if the income left out of tax net is Rs50 lakh or more.
Even in search cases, it is proposed to limit the period to six years before the year of search, as against the existing time limit of ten years. This will reduce tax-uncertainty and disputes.
In the case of capital gains tax, it is proposed that short term gains on certain financial assets shall be taxed at a rate of 20 per cent, while that on all other financial assets and all non-financial assets shall continue to attract the applicable tax rate.
Long term gains on all financial and non-financial assets will attract a tax rate of 12.5 per cent. The budget proposes to increase the exemption limit of capital gains on certain financial assets to Rs1.25 lakh per year.
For long term gains, listed financial assets have to held for more than a year, while unlisted financial assets and all non-financial assets will have to be held for at least two years.
Unlisted bonds and debentures, debt mutual funds and market linked debentures will continue to attract capital gains tax at applicable rates, irrespective of the holding period.
Tax payer services
At present, all the major tax payer services under GST and most services under customs and income tax are digitalised. It is now proposed to digitalise the remaining services of customs and income tax, including rectification and order giving effect to appellate orders, over the next two years.
Litigation
Sitaraman has proposed to deploy more officials to hear and decide pending appeals, especially those with large tax incidence.
For resolution of certain income tax disputes pending appeal, she also proposed Vivad Se Vishwas Scheme, 2024.
Also, the finance minister proposed to increase monetary limits for filing appeals related to direct taxes, excise and service tax in the Tax Tribunals, High Courts and Supreme Court to Rs60 lakh, Rs2 crore and Rs5 crore, respectively.
To provide certainty in international, she proposed to expand the scope of safe harbour rules and make them more attractive, besides streamlining the transfer pricing assessment procedure.
Employment and investment
To promote investment and foster employment and the Indian start-up eco-system as also the entrepreneurial spirit and support innovation, she proposed to abolish angel tax for all classes of investors.
To give a fillip to this employment generating Tourism sector, Sitaraman proposed a simpler tax regime for foreign shipping companies operating domestic cruises in the country.
To give a boost to the diamond cutting and polishing industry, which employs a large number of skilled workers, the finance minister proposed to provide for safe harbour rates for foreign mining companies selling raw diamonds in the country.
Also, she proposed to reduce the corporate tax rate on foreign companies from 40 to 35 per cent in order to attract more foreign investment.
Deepening tax base
The finance minister also announced proposals for deepening the tax base. These include:
Increasing the security transactions tax rate on futures and options of securities to 0.02 per cent and 0.1 per cent respectively; and
Tax income received on buyback of shares in the hands of the recipient.
To improve social security benefits, the finance minister proposed to increase the tax exemption limit for employer contribution towards NPS from 10 to 14 per cent of the employee’s salary. This tax exemption of such expenditure of up to 14 per cent will also be provided to salary income of employees in private sector, public sector banks and undertakings, opting for the new tax regime.
While non-reporting of ESOPs and social security benefits and other movable that Indian professionals working in multinational companies will continue to be a penal act under the Black Money Act, the finance minister proposed to depenalise such non-reporting of movable assets up to Rs20 lakh.
The Finance Bill also provides for:
• Withdrawal of equalisation levy of 2 per cent;
• Expansion of tax benefits to certain funds and entities in IFSCs; and
• Immunity from penalty and prosecution to benamidar on full and true disclosure so as to improve conviction under the Benami Transactions (Prohibition) Act, 1988.