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New income tax act, easier TDS, STT hike: What Union Budget changed, and didn't, for direct taxes
While some proposals were aimed at providing relief to common taxpayers and easing compliance, others like STT hike will reduce net profits for active traders.
Finance Minister Nirmala Sitharaman on Sunday announced a slew of tax-related changes and proposals in the Union Budget, and also left some provisions and measures at status quo.
While some of these proposals were aimed at providing relief to common taxpayers and simplifying compliance, others like the STT hike will reduce net profits for active traders.
New Income Tax Act effective from April 1
Finance Minister Sitharaman, during her Budget speech, said the Income Tax Act, 2025 will come into effect from April 1, adding that rules and tax returns forms will be notified accordingly.
The new act will replace the six-decade old tax law, with changes introduced in the tax laws in 2026-27 Budget to be included in the new legislation.
“This (direct tax code) was completed in record time and the Income Tax Act 2025 will come into effect from first April 2026. The simplified income tax rules and forms will be notified shortly, giving adequate time to taxpayers to acquaint themselves with its requirements,” the Finance Minister said.
No changes in Income Tax rates
The new 2025 Income Tax Act is revenue neutral, with no changes being made to tax rates. The forms for Income Tax have been redesigned, in order to ease compliance for ordinary citizens, Sitharaman said.
This makes direct tax laws simple to understand, removes ambiguities, and thus reduces scope for litigations, PTI reported. In comparison to the 1961 Income Tax Act, it reduces text volume and sections by nearly 50 per cent.
See highlights on Income Tax in Union Budget here
Reduces TDS compliance burden
The new Budget reduces the compliance burden for Tax Deducted at Source (TDS), with the Finance Minister proposing that an individual purchasing immovable property from non-residents will no longer be required to furnish TAN details.
Tax Deduction and Collection Account Number (TAN) are issued to corporate entities, while the Permanent Account Number (PAN) is for individuals.
As part of the new framework, resident individuals or Hindu Undivided family (HUF) can report the TDS by giving PAN numbers, similar to transactions between two residents.
STT hike for Futures and Options trade
The Securities Transaction Tax on Futures and Options trade has been hiked, with the tax being raised to 0.05 per cent from 0.02 per cent for the latter.
For Options trade, STT on options premium and exercise of option will both be increased to 0.15 per cent from the present rate of 0.1 per cent and 0.125 per cent, Sitharaman said.
The hike in STT, charged on the value of securities traded on recognised stock exchanges in India, has been proposed to curb excessive speculation in the futures and options (F&O) segment, but will reduce net profits for active futures traders.
