Finance Minister Nirmala Sitharaman introduced several tax provisions in the Union Budget 2025-26 aimed at reducing compliance burdens, easing litigation, promoting investment, and boosting employment. These measures cover areas like charitable trusts, housing tax benefits, international taxation, senior citizen savings, and incentives for startups and inland water transport.
Relief for Small Charitable Trusts
The compliance burden for small charitable trusts has been significantly reduced. These trusts previously had to renew their registration every five years, but now they will have 10 years for registration.
This extension allows small charitable organizations to focus on their philanthropic activities rather than frequent compliance requirements. The move is expected to benefit educational, healthcare, and religious institutions that operate on a non-profit basis.
Tax Benefits for Self-Occupied Homeowners
Under current tax laws, taxpayers can claim the annual value of self-occupied homes as nil only under specific conditions. The new provisions will allow this benefit for two self-occupied properties without any conditions.
This change benefits individuals who own multiple homes but do not rent them out. Previously, tax was applicable on the notional rental income of the second property, even if it was not earning any rent. The removal of these conditions provides relief to middle-class homeowners and real estate investors.
Expansion of Safe Harbour Rules in International Taxation
To reduce litigation and ensure certainty in international taxation, the government has expanded the scope of safe harbour rules.
Safe harbour rules set pre-determined margins for transfer pricing transactions, reducing disputes between businesses and tax authorities. The broader scope means more multinational companies will benefit from reduced tax-related litigations, leading to a more business-friendly environment.
Tax Exemption for Senior Citizens on Old National Savings Scheme Accounts
Senior citizens with very old National Savings Scheme (NSS) accounts that are no longer earning interest will be allowed to withdraw their savings without any tax liability.
Many senior citizens have kept their savings in old NSS accounts that do not generate returns, making withdrawal difficult due to tax implications. This provision ensures that retirees can access their funds without unnecessary tax deductions, improving their financial security.
Presumptive Taxation Scheme for Non-Resident Service Providers
To promote investment and employment, the government has proposed a presumptive taxation scheme for non-residents who provide services to electronics manufacturing in India.
Presumptive taxation simplifies tax compliance for businesses by allowing them to pay a fixed percentage of income as tax instead of maintaining detailed financial records. This provision is expected to attract more foreign service providers to support India’s growing electronics sector, boosting local manufacturing and employment.
Tonnage Tax Scheme Extended to Inland Vessels
Currently, the tonnage tax scheme is only available to sea-going ships. The government has extended this scheme to inland vessels to encourage inland water transport across India.
The tonnage tax scheme allows shipping companies to pay a fixed tax based on the capacity of their vessels instead of traditional corporate taxation. By including inland water vessels, the government aims to promote river transport, reduce logistics costs, and strengthen connectivity between different regions.
This move is expected to boost inland waterway trade, particularly along major rivers like the Ganga, Brahmaputra, and Godavari.
Extension of Incorporation Period for Startups
To support startups, the Finance Minister announced an extension of the incorporation period by five years for companies seeking tax benefits.
Now, startups incorporated until 2030 will be eligible for various tax exemptions and incentives. Previously, only startups incorporated before a certain cutoff year could avail these benefits.
The extension aligns with the government’s efforts to nurture the startup ecosystem, encourage innovation, and create more employment opportunities. It also supports India’s vision of becoming a global startup hub.
Objective Behind These Tax Provisions
The new tax proposals in the Union Budget 2025-26 align with the government’s broader vision of:
- Reducing compliance burden for individuals, businesses, and charitable organizations.
- Providing financial relief to senior citizens and homeowners.
- Encouraging voluntary compliance by simplifying taxation rules.
- Minimizing tax litigation and ensuring certainty for international businesses.
- Boosting investment and employment by making India attractive for startups and foreign investors.
- Improving ease of doing business by rationalizing tax rules for different sectors.
- Enhancing inland water transport through tax incentives for shipping companies.
Economic and Industry Reactions
Tax experts and industry leaders welcomed these announcements, stating that they will create a more transparent and predictable tax environment.
Real estate developers praised the removal of conditions for claiming nil annual value for two self-occupied properties, stating that it will encourage second-home ownership and investment in housing.
Shipping and logistics companies appreciated the extension of the tonnage tax scheme to inland vessels, which will encourage sustainable and cost-effective water transport.
Startup founders and investors were encouraged by the extension of the incorporation period until 2030, stating that it provides a longer window for new ventures to take advantage of tax exemptions and build sustainable businesses.
Conclusion
The Union Budget 2025-26 introduced several taxpayer-friendly reforms that reduce compliance burdens, simplify tax rules, and provide financial relief to homeowners, senior citizens, startups, and businesses.
By extending tax incentives, reducing litigation, and expanding tax benefits across different sectors, the government aims to boost investment, create employment, and improve ease of doing business. These tax measures reflect the government’s commitment to taxpayer welfare, economic growth, and long-term financial stability.