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The previous full Budget had provided some relief to salaried taxpayers opting for the simplified tax regime
Income Tax Budget 2025
Union Budget 2025 is scheduled to be presented before the Parliament on 1 February 2025. The previous full Budget, presented six months before in July 2024, had provided some relief to salaried taxpayers opting for the simplified tax regime, by way of increased standard deduction from INR 50,000 to INR 75,000 and through rejigged tax slabs. This year’s Budget announcements are expected to carry forward the momentum towards boosting the disposable income of taxpayers and easing compliance.
The Finance Minister had laid the foundation for a comprehensive review of the Income-tax Act in the July 2024 Budget to make the legislation concise, lucid, and easy to understand. A committee formed by CBDT to oversee this review has already garnered over 6,500 suggestions. With this feedback under review, the upcoming Budget presents an opportunity to witness changes aimed at simplifying the tax law and in easing tax compliance. The following are some of Budget 2025’s expectations in the personal tax space.
Easing TDS Compliance on NRI Real Estate Transactions
TDS compliance on purchasing property from non-residents has long been an intricate process for Indian taxpayers. Under current provisions, a buyer must withhold tax at an ‘applicable rate’ when the seller is a non-resident. This further necessitates obtaining a Tax Deduction and Collection Account Number (TAN) and filing e-TDS returns. While obtaining a TAN is a one-time requirement, it often results in the TAN later becoming inactive as property transactions with a non-resident seller(s) are quite infrequent. Taxpayers hope for a system akin to the streamlined challan-cum-return process, which is available for resident sellers, allowing them to complete TDS compliance without unnecessary administrative hurdles.
Easing Non-Resident Tax Compliances
There is a sizeable population of individual taxpayers who qualify as non-resident (NR) in India. These NRs may earn some income in India due to their employment with an Indian company or may be due to passive income sources in India which may trigger a requirement for filing a tax return in India.
Being NRs, such individuals are required to file their tax return in Form ITR-2 even for cases where no relief is being claimed under a Double Taxation Avoidance Agreement. In case any tax payment is required to be made before filing the tax return, it can be done through anyone of the options available on the tax department’s website.
However, all payment methods are limited to the Indian banking ecosystem which makes the tax payment process more challenging for NRs. Allowing NR taxpayers to use the simplified ITR 1 Form where no double taxation relief are being claimed in their tax returns, will imply a considerable step towards simplifying their compliances. Further, introducing a mechanism for payment of income tax directly from overseas bank accounts will simplify the tax compliance process for such NRs.
Similar challenges are being faced by NRs who have a tax refund due in their tax returns. Such individuals need to maintain a bank account in India just for collecting the refund. Their challenges can be eased by establishing a process for remittance of tax refunds outside India.
Timelines for Filing Revised/ Belated Returns
The timeline for filing is another area that needs change. To file revised or belated returns, the current timeline is 31 December following the end of the financial year; for taxpayers claiming double taxation relief, especially credit of taxes paid in foreign jurisdictions, the aforementioned due date provides a very limited window for accurately ascertaining the foreign tax credit. This is especially true when the foreign tax credit is to be claimed in respect of a country which follows calendar year compliances and 31 December coincides with their fiscal year end. Extending the deadline to March 31 would provide ample time to taxpayers to claim accurate FTCs without resorting to estimates.
Vivad se Samadhan
Another significant challenge which currently burdens both the taxpayers and the administrators, is the pendency of tax disputes – especially at the first appellate level before the Commissioner of Income Tax (Appeals). While introduction of Vivad Se Vishwas Scheme and faceless appeal process have provided some relief, taxpayers still face delays, often exceeding six years. A more robust appeal disposal process including an automated appeal effect and refund issuance for resolved cases, could alleviate these hardships by closing long-standing disputes.
The Union Budget 2025 holds immense potential to redefine the personal taxation landscape. By addressing long-standing challenges such as TDS compliance, overseas tax payments, and refunds, and resolving the appeal pendency, the government can provide taxpayers with a fair and efficient tax system. As taxpayers and stakeholders eagerly await the announcement, the hope is that this Budget will not only simplify the compliance of individual taxpayers but also empower them to contribute meaningfully to the nation’s economic growth. Whether these aspirations are realized or not will soon unfold, but the dialogue and anticipation reflect a collective vision for a fairer, more inclusive tax regime.
Written By: Tarun Garg is a Director with Deloitte Haskins & Sells LLP and Aditya Soni, Manager, Deloitte Haskins and Sells LLP and Nitish Kohli, Associate Director, Deloitte Haskins & Sells LLP have also contributed to this article.
Disclaimer:The views expressed in this article are those of the author and do not represent the stand of this publication.
