TDS on FD, NPS Vatsalya, ULIP taxation: Tax changes to know post Budget

Budget 2025 has introduced several personal finance changes that could significantly impact taxpayers and investors. Here are the key updates you must know: 

 

ULIP Taxation: The finance ministry clarification on Unit Linked Insurance Plans (ULIPs) now ensures that if the annual premium exceeds Rs 2.5 lakh, the redemption is subject to capital gains tax. If held for over a year, ULIPs will be taxed at 12.5%, aligning them with equity-oriented mutual funds. Currently, for Ulips bought after 1 February 2021, the redemption is tax-free under Section 10(10D) only if the annual premium of one or multiple policies does not exceed Rs2.5 lakh.

 

 

Updated ITR Filing: The timeline for filing updated income tax returns has been extended from two to four years, allowing taxpayers more flexibility. However, the ability to claim refunds or reduce liabilities is restricted. The tax payable is 60% of the tax and interest on additional income for filing updated returns within three years  from the end of the assessment year, and 70% for filing within four years from the end of the assessment year. This amount is 25% for filing within a year and 50% within two years.

 

NPS Vatsalya: The NPS Vatsalya scheme, aimed at supporting children or dependants with disabilities, will now have the same tax exemptions as the regular NPS, offering parents an additional Rs 50,000 tax deduction under the old tax regime.

 

Changes in TDS limits – Tax deduction limit on interest earned by senior citizens has been increased to Rs 1 Lakh (currently Rs 50,000) and non-senior citizens to Rs 50,000 (currently Rs 40,000). TDS threshold on rent has been increased to Rs 6 Lakh per annum from Rs 2.4 Lakh per annum. TDS threshold on Dividend income has also been increased. 

 

Changes in TCS limits – TCS threshold for remittances made under the RBI’s Liberalized Remittance Scheme (LRS) is proposed to be increased from Rs 7 lakh to Rs 10 lakh. Secondly, the TCS on remittances for education purposes is expected to be removed when the remittance is out of a loan taken from specified financial institutions.

 

Previously, TDS was deducted if the total dividend payout from mutual funds exceeded Rs 5,000 in a financial year. This threshold has now been increased to Rs 10,000, reducing the number of investors who will be subject to TDS on dividends (Section 194K).

 

Tax exemption is now available for two self-occupied properties i.e. you can claim zero valuation for the second house property even if it is unoccupied/not rented out (this was earlier taxed based on deemed income).

 

NSS withdrawals tax-exempt

All withdrawals from the National Savings Scheme, made on or after 29 August 2024, will now enjoy tax exemption for any amount deposited and interest accrued, for which a deduction has been allowed.

 

Revamped KYC

The government will roll out a revamped Central Know Your Customer (KYC) system in 2025, along with a streamlined framework for periodic updates. This enhanced registry aims to simplify the KYC process, making it more user-friendly and efficient.