Finance Act 2025 — 14 changes to act on for FY 2025-26
The Finance Act 2025 doesn't blow up the system — it tunes it. New-regime slabs were redrawn, the 87A rebate now extends up to ₹12 L of taxable income, capital-gain rates were unified at 12.5%, MSME Sec 43B(h) entered its second year of muscle, and TDS was rationalised. Here's what your reading list looks like for the year ahead.
1. New-regime slabs were redrawn
The new-regime slab structure for individuals and HUFs is the headline change. The exemption threshold moved up and the rate steps now climb in cleaner ₹4 L increments. Slabs for FY 2025-26 (AY 2026-27):
| Income (₹) | Rate |
|---|---|
| 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 24,00,000 | 30% |
Old-regime slabs are unchanged — the government continues to nudge taxpayers toward the new regime.
2. Section 87A rebate now goes up to ₹12 L of taxable income
This is the change that matters most to salaried earners. The rebate u/s 87A in the new regime has been extended such that resident individuals with taxable income up to ₹12,00,000 pay zero income tax (after standard deduction, effectively ₹12.75 L gross for salaried).
The cap on the rebate itself is ₹60,000. There is also marginal relief: just above the ₹12 L threshold, the rebate phases out smoothly so a ₹1 income increase doesn't cost ₹60,000 in tax.
3. Standard deduction stays at ₹75,000 (new regime)
Standard deduction for salaried and pensioners in the new regime: ₹75,000. In the old regime it remains ₹50,000. Family-pension deduction in the new regime: ₹25,000 (up from ₹15,000 in the old).
4. LTCG @ 12.5% across asset classes
Budget 2024 already unified Long-Term Capital Gains at 12.5% across listed equity, unlisted equity, property and other long-term assets. The exempt slice for listed equity (Sec 112A) is ₹1,25,000 per year.
Holding-period thresholds were also harmonised: listed equity → 12 months, unlisted equity → 24 months, property → 24 months.
5. Property LTCG — the dual option for sales pre-23-Jul-2024
For immovable property acquired before 23 July 2024, taxpayers can choose between:
- 20% with indexation (CII benefit), or
- 12.5% without indexation (flat),
whichever is lower. For sales after 23 July 2024, only the 12.5% (no-indexation) route applies. Our capital gains tool computes both for you.
6. STCG on equity bumped to 20%
Short-term capital gains on equity (Sec 111A) are now taxed at 20% (up from 15%). The 15% rate is gone — anyone who held listed equity for under 12 months pays 20% from FY 2024-25 onwards.
7. Surcharge cap holds at 25% (new regime)
For new-regime taxpayers, surcharge is capped at 25% even on income above ₹5 Cr. Old regime continues with 37% surcharge above ₹5 Cr. This is one of the strongest old-vs-new tilt levers for HNIs.
8. TDS section 194 family — rationalised
Several rates were unified, thresholds bumped, and a few overlapping sections collapsed. The most noticed:
- Sec 194-IA — TDS on property sale > ₹50 L stays at 1%, but reporting is tightened.
- Sec 194-O — e-commerce TDS held at 1%, with clearer marketplace facilitator definition.
- Sec 206AA (no-PAN) — max rate retained at 20%, but compliance verification stricter.
9. MSME Sec 43B(h) — second year of teeth
This is the sleeper that catches many CFOs. Payments to Micro and Small enterprises must clear in 15 days (no written agreement) or 45 days (with agreement) — else the expense is disallowed in the year of payment, not the year of accrual.
10. MSME thresholds widened (Budget 2025)
Effective 1 April 2025, MSME classification limits were widened. The new thresholds:
| Category | Investment | Turnover |
|---|---|---|
| Micro | ≤ ₹2.5 Cr | ≤ ₹10 Cr |
| Small | ≤ ₹25 Cr | ≤ ₹100 Cr |
| Medium | ≤ ₹125 Cr | ≤ ₹500 Cr |
If you classify your suppliers as MSE for Sec 43B(h) — re-check after April 2025 because some that fell out might be back in.
11. Section 44AB — tax audit thresholds unchanged
For completeness — tax-audit thresholds are unchanged for FY 2025-26: ₹1 Cr for business (or ₹10 Cr if cash receipts/payments ≤ 5%), ₹50 L for profession. Presumptive 44AD continues at ₹2 Cr / ₹3 Cr (digital receipts) and 44ADA at ₹50 L / ₹75 L.
12. ESOP perquisite deferment — eligible startups
For employees of DPIIT-recognised eligible startups u/s 80-IAC, perquisite tax on ESOP exercise can be deferred to the earliest of (a) 48 months from end of relevant AY, (b) sale of shares, or (c) leaving the company. This is the single biggest lever for early-stage employees who exercise but don't immediately sell.
13. 26AS / AIS — pre-filling is heavier than ever
The Annual Information Statement now pre-fills more categories — interest, dividend, mutual-fund sales, broker P&L, GST T/O, foreign remittances. The CPC compares these to your ITR and issues 143(1) intimations automatically for mismatches.
14. Belated and updated returns — the windows
Two recovery windows you should know:
- Belated / revised return u/s 139(4) / 139(5) — last date 31 December of the AY (i.e. 31 Dec 2026 for AY 2026-27).
- Updated return u/s 139(8A) — available for 24 months from end of AY, with additional tax (25% in first year, 50% in second year).
What to do this week
- Run an old-vs-new regime comparison for every salaried client — the break-even has shifted. Our guide + the regime calculator.
- For businesses: audit your MSME vendor master. Are you flagging the 15-day clock correctly? Field guide here.
- If you sold property after 23 July 2024 — model both LTCG options (20% indexed vs 12.5% flat).
- For startups paying ESOPs — confirm 80-IAC status. The deferment is worth ~6-7 figures in tax for early employees.
- Reconcile AIS before filing. Always.