New Income Tax Rules for FY 2025-26

The Indian government has made significant changes to the income tax structure for the financial year 2025-26. Finance Minister Nirmala Sitharaman announced that the zero-tax income threshold will rise from Rs 7 lakh to Rs 12 lakh. This change is expected to bring relief to many middle-class taxpayers. The new rules will allow individuals earning up to Rs 12 lakh to enjoy a full income tax rebate under Section 87A, resulting in zero tax liability. Additionally, the basic income exemption limit has increased from Rs 3 lakh to Rs 4 lakh. This article explores the implications of these changes, including filing requirements and penalties for non-compliance.

Understanding the New Income Tax Threshold

The increase in the zero-tax income threshold is a welcome change for many taxpayers. Previously, individuals earning up to Rs 7 lakh could avail themselves of a tax rebate, but now this limit has been raised to Rs 12 lakh. For salaried individuals, the threshold is slightly higher at Rs 12.75 lakh due to a standard deduction of Rs 75,000. This means that many taxpayers will no longer have to pay income tax, allowing them to retain more of their earnings.

From April 1, 2025, individuals earning up to Rs 12 lakh will benefit from a complete tax rebate under Section 87A. This change is particularly beneficial for the middle class, who often feel the burden of taxation. The government has also raised the basic exemption limit to Rs 4 lakh, providing additional relief. These adjustments are part of a broader effort to make the tax system more equitable and to support economic growth by increasing disposable income among taxpayers.

Do You Need to File an ITR if You Earn Below Rs 12 Lakh?

A common question among taxpayers is whether they need to file their Income Tax Returns (ITR) if their income is below Rs 12 lakh. The answer is nuanced. For individuals earning up to Rs 4 lakh, there is no requirement to file an ITR or pay taxes. However, those earning between Rs 4 lakh and Rs 12 lakh must still file their ITRs to claim the rebate under Section 87A.

Currently, individuals earning above Rs 3 lakh but below Rs 7 lakh in the new regime must file ITRs to claim the rebate. The Budget 2025 has increased the rebate amount from Rs 25,000 to Rs 60,000 under the new regime. Tax experts emphasize that filing an ITR is essential for those who wish to benefit from this rebate. Without filing, individuals may miss out on significant tax savings, even if their tax liability is zero.

Penalties for Not Filing an ITR

Failing to file an ITR can lead to complications, even for those earning between Rs 4 lakh and Rs 12 lakh. If an individual does not file their ITR by the deadline, they may receive a notification from the Income Tax Department regarding unpaid taxes. While they can still claim the rebate under Section 87A, there may be penalties for not filing voluntarily.

Previously, the Income Tax Department had the authority to impose penalties under Section 271F for late submissions. However, this penalty was rarely enforced. Instead, the government introduced a late fee system under Section 234F, which imposes a fee of Rs 1,000 for individuals with total income up to Rs 5 lakh and Rs 5,000 for those exceeding this amount. Additionally, taxpayers who miss the filing deadline may incur interest charges of 1% per month on the outstanding amount until the return is filed or the assessment is finalized.

Benefits of Filing an ITR Even Below the Basic Exemption Limit

Filing an ITR can provide several advantages, even for individuals whose income falls below the basic exemption limit. While it is not mandatory for these individuals, submitting a nil ITR can be beneficial. Tax experts recommend filing ITRs on time, as they serve as proof of income and address. This documentation can facilitate loan approvals from banks and non-banking financial companies (NBFCs).

Moreover, many consulates and embassies require ITRs for visa applications, making it essential for those planning to travel abroad. Filing a nil ITR can also help maintain a good financial record, which may be advantageous for future financial dealings. Overall, while the new tax rules provide relief, understanding the filing requirements and benefits is crucial for taxpayers to maximize their financial well-being.

Observer Voice is the one stop site for National, International news, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.

Follow Us on Twitter, Instagram, Facebook, & LinkedIn