Income Tax Rules 2026: From increasing the tax-free income limit to simplifying TDS rules, the government has made several changes in 2025 that will completely change your tax planning in 2026.
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Income Tax Rule 2026: The year 2025 brought several significant reliefs and changes for taxpayers. While the previous Budget 2025 provided significant relief to the middle class and salaried individuals, efforts were also made to simplify and make the tax system transparent. From increasing the tax-free income limit to easing TDS rules and extending the return filing deadline, these changes will directly impact your tax planning in the coming years.
Let’s explore five major income tax changes in 2025 that will impact your income and taxes.
1. Zero tax on income up to ₹12.75 lakh
The biggest relief in Budget 2025 is the increase in tax rebate under Section 87A. Under the new tax regime, individuals with net taxable income up to ₹12 lakh will be exempt from tax. Salaried taxpayers also benefit from a standard deduction of ₹75,000. This means that tax will be zero on gross salary up to ₹12.75 lakh. However, if taxable income exceeds ₹12 lakh, tax will be payable as per the chosen tax regime.
2. Major reforms in medical and investment rules
Budget 2025 provides another relief for salaried employees. The tax-free perquisite limit will now be increased for company-incurred expenses for medical treatment abroad. Perquisite refers to the additional benefits or perks an employee receives beyond their salary. This limit had not been changed for several decades. The government believes that living standards and expenses have changed over time, so updating these limits was necessary. This will allow more employees to benefit from tax exemptions.
3. Clarification of tax rules on ULIP earnings
Budget 2025 clarified the tax rules for ULIPs (Unit Linked Insurance Plans). ULIP policies that are not exempt under Section 10(10D) will now be considered capital assets. Consequently, profits from these policies will be taxable as capital gains. This clarification was necessary because of the confusion surrounding the tax imposed on ULIPs with premiums exceeding ₹2.5 lakh in 2021.
4. Major relief for senior citizens on interest income
Budget 2025 brought good news for senior citizens. The TDS limit on interest income has been increased from ₹50,000 to ₹1 lakh. This means that income from bank FDs or other interest income up to ₹1 lakh per annum will no longer be subject to TDS. This will provide relief to senior citizens with cash flow and reduce the hassle of refunds.
5. TDS limit doubled on dividend income
Providing relief to small investors, the government has increased the TDS limit on dividend income from ₹5,000 to ₹10,000. This means that if an individual receives a dividend of up to ₹10,000 annually, TDS will not be deducted. This change will especially benefit small shareholders.
These income tax changes clearly indicate the government’s intention to simplify the tax system and make it more taxpayer-friendly. Whether you’re a salaried employee, a senior citizen, or an investor, these 2025 rules will play a crucial role in your tax planning. With the right information and timely planning, you can take full advantage of these changes.
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