Impact of Union Budget 2025-26 on HR and Payroll Management

The Union Budget 2025-26 was presented by Honourable Finance Minister Nirmala Sitharaman on 1st February 2025, which introduced crucial reforms in income tax, payroll, and compliance for MSMEs and start-ups. We are sharing the key points discussed in this Budget that are relevant for HRs, highlighting their impact on payroll and income tax, compliance, and business operations.

Revised Tax Slabs: More Savings for Employees

The Union Budget 2024-25 introduced revised income tax slabs for New Tax Regime employees, increasing their in-hand salaries. Income from salary up to ₹12.75 lakhs has become technically free from income tax, easing the financial burden on employees.

Employers are required to update their payroll structures to accurately reflect these changes. Pocket HRMS will also ensure automatic adjustments in payroll computations, helping you remain compliant with the revised tax slabs.

Updated Tax Slabs:

TDS & TCS Reforms: Reduced Compliance Burden

Similarly, higher TDS exemption limits were applied for rent, interest, and dividend income, reducing tax deductions:

• Interest for Senior Citizens: increased from ₹50,000 to ₹1,00,000.
• Rent Exemption increased from ₹2.4L to ₹6L annually.
• TDS threshold on Dividend Income raised to ₹10,000.

Similarly, TCS on education loans were removed, benefiting employees funding overseas education of their children.

As a result of these changes, the HR and finance teams must realign payroll calculations to accommodate these reforms. Once again, Pocket HRMS automates the process of TDS calculations based on the revised tax slabs, helping you maintain compliance without manual intervention.

Social Security Enhancements for Gig Workers

Gig and platform workers will now be receiving health insurance under PM Jan Arogya Yojana. Additionally, formal identity cards will be issued to them, enabling better financial inclusion for gig workers.

Organizations choosing the services of freelancers should update their employment policies to integrate these new benefits into their payroll process. While Pocket HRMS will include these changes, you should provide streamlined benefits enrolment options to your freelance service providers.

MSMEs & Start-ups: Boosting Growth & Financial Support

Investment and turnover limits have been raised for MSMEs, allowing them to scale operations:

Additionally, the credit guarantee limit has also been increased from ₹5 Crores to ₹10 Crores, along with the introduction of MSME credit cards (with ₹5 Lakh limit) to improve cash flow.

Businesses can utilize our HR automation options to manage workforce expansion more effectively, as Pocket HRMS can easily scale according to your growing business requirements.

Incentives for Start-ups & Entrepreneurs

The budget also allocated additional capital to the start-up fund of funds. The tax exemptions for start-ups have also been extended until 31st March 2030, encouraging innovation and employment generation. Additionally, the start-up credit guarantee limit has been increased from ₹10 crores to ₹20 crores.

With better funding, companies investing in HR technology will be able to opt for better features, which positively impacts their overall efficiency and productivity.

Simplified Corporate Tax & Regulatory Reforms

The upcoming Income Tax Bill aims to simplify corporate taxation, while the Jan Vishwas Bill 2.0 is expected to decriminalize minor business offences. Similarly, automation with the digitalization of taxation is expected to reduce HR workload, along with streamlined KYC processes for businesses through a centralized registry.

Here’s how Pocket HRMS will help:

• Automated tax updates, ensuring accurate payroll processing without manual input.
• TDS & compliance handling will also be completely automated with real-time adjustments aligned with new tax thresholds.
• Dedicated smHRt payroll geared for start-ups and MSMEs, helping businesses leverage Machine Learning for payroll processing.

Conclusion

Union Budget 2025 brings significant tax relief for employees, streamlines compliance for businesses, and boosts MSME credit access. As a leading HRMS platform, Pocket HRMS is committed to ensuring the smooth adoption of these changes for all our customers. We will ensure seamless adaptation to these changes through automated solutions, expert guidance, and real-time updates.

Pocket HRMS will automatically integrate the latest tax and compliance updates from Budget 2025. Stay tuned for live webinars, detailed guides, and expert consultations on seamless implementation. If you have any queries, feel free to get in touch with us by filling out the form shown above. Pocket HRMS users can also contact their dedicated account manager to resolve any doubts related to their payroll and compliance changes.