The Budget 2025 comes at a critical time when there is slowdown in growth and uncertainties around the globe in the wake of geo-political tensions and the U.S. tariff threats. The record Budget of Nirmala Sitharaman has sought to underscore the resilience of the Indian economy and focussed on tax reliefs, duty rationalisation, infra thrust, stepped-up emphasis on MSMEs & start-ups and sectoral reforms.
Indeed, the Budget 2025 stands out for its outreach to the middle class and farmers. At the same, there is also a political outreach exercise, especially in the wake of the ensuing Delhi election and Bihar polls later this year.
The Finance Minister has also thrown a surprise by raising the FDI (foreign direct investment) limit in insurance to 100 per cent, though with a rider that the premium collected must be invested back into the country.
Yet, the announcement on the income-tax front has come as a huge focus point across the spectrum. She has also hinted at a new taxation bill next week.
Big booster to Middle Class
“Democracy, demography and demand are the key support pillars in our journey towards Viksit Bharat. The middle class provides strength for India’s growth. In recognition of their contribution, we have periodically reduced their tax burden. Right after 2014, the ‘Nil Tax’ slab was raised to 2.5 lakh, which was further raised to 5 lakh in 2019 and to 7 lakh in 2023. This is reflective of our Government’s trust on the middle-class taxpayers. I am now happy to announce that there will be no income tax payable up to income of 12 lakh (i.e. average income of 1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be 12.75 lakh for salaried tax payers, due to standard deduction of 75,000,” she said in her Budget speech.
“Slabs and rates are being changed across the board to benefit all taxpayers. The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment,” she added.
To taxpayers up to Rs. 12 lakh of normal income (other than special rate income such as capital gains), tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them. The total tax benefit of slab rate changes and rebate at different income levels can be illustrated with examples. A tax payer in the new regime with an income of Rs. 12 lakh will get a benefit of Rs. 80,000 in tax (which is 100% of tax payable as per existing rates). A person having income of Rs. 18 lakh will get a benefit of Rs. 70,000 in tax (30% of tax payable as per existing rates). A person with an income of Rs. 25 lakh will get a benefit of Rs. 1,10,000 (25% of his tax payable as per existing rates).
TDS rationalisation
The Finance Minister has also announced rationalisation of tax deduction at source (TDS) by reducing the number of rates and thresholds above which TDS is deducted. Further, the threshold amount for tax deduction is proposed to be increased for better clarity and uniformity. The limit for tax deduction on interest for senior citizens is being doubled from the present Rs. 50,000 to Rs. 1 lakh. Similarly, the annual limit of Rs. 2.40 lakh for TDS on rent is being increased to Rs. 6 lakh. This will reduce the number of transactions liable to TDS, thus benefiting small taxpayers receiving small payments. The threshold to collect tax at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS) is proposed to be increased from Rs. 7 lakh to Rs. 10 lakh.
“I also propose to remove TCS on remittances for education purposes, where such remittance is out of a loan taken from a specified financial institution. Both TDS and TCS are being applied on any transaction relating to sale of goods. To prevent such compliance difficulties, I propose to omit the TCS. I also propose that the provisions of the higher TDS deduction will now apply only in non-PAN cases,” she added.
“Presently tax-payers can claim the annual value of self-occupied properties as nil only on the fulfilment of certain conditions. Considering the difficulties faced by taxpayers, it is proposed to allow the benefit of two such self-occupied properties without any condition,” the Finance Minister said.
D. Lakshminarayanan, Managing Director of Sundaram Home Finance, said,”income-tax slab rationalisation will put more money in the hands of the people and is likely to increase affordability and boost consumption.” The Budget move to exempt two houses as self-occupied, according to him, is likely to have a twin benefit of reduction in tax impact and increase in investment.
Dhan-Dhaanya Krishi Yojana
The success of the aspirational districts programme has spurred the Finance Minister to announce a ‘Prime Minister Dhan-Dhaanya Krishi Yojana’ in partnership with states. “Through the convergence of existing schemes and specialized measures, the programme will cover 100 districts with low productivity, moderate crop intensity and below-average credit parameters,” she said in her Budget speech. The scheme ostensibly is intended to enhance agricultural productivity, adopt crop diversification and sustainable agriculture practices, augment post-harvest storage at the panchayat and block level, improve irrigation facilities and facilitate availability of long-term and short-term credit. According to the Finance Minister, the programme will help 1.7 crore farmers. “A comprehensive multi-sectoral ‘Rural Prosperity and Resilience’ programme will be launched in partnership with states. This will address underemployment in agriculture through skilling, investment, technology and invigorating the rural economy. The goal is to generate ample opportunities in rural areas so that migration is an option, but not a necessity. The programme will focus on rural women, young farmers, rural youth, marginal and small farmers and landless families,” she added.
Bihar bonanza
With an eye on poll-bound Bihar, Nirmala Sitharaman has announced the setting up of a Makhana Board in Bihar to improve production, processing, value addition and marketing of makhana. “The people engaged in these activities will be organized into FPOs. The Board will provide handholding and training support to makhana farmers and will also work to ensure that they receive the benefits of all relevant Government schemes,” she added. According to her, Greenfield airports will be facilitated in Bihar to meet the future needs of the State. These will be in addition to the expansion of the capacity of Patna airport and a brownfield airport at Bihta. Nirmala Sitharaama has also announced the Western Koshi Canal Project in Mithilanchal. “Financial support will be provided for the Western Koshi Canal ERM Project benefitting a large number of farmers cultivating over 50,000 hectares of land in the Mithilanchal region of Bihar,” she added.
On mission mode
The Budget has also proposed the launch of a 6-year “Mission for Aatmanirbharta in Pulses” with a special focus on tur, urad and masoor. The Finance Minister has also announced a ‘Mission for Cotton Productivity’. This 5-year mission will facilitate significant improvements in productivity and sustainability of cotton farming and promote extra-long staple cotton varieties. Kisan Credit Cards (KCC) facilitate short-term loans for 7.7 crore farmers, fishermen and dairy farmers. “The loan limit under the Modified Interest Subvention Scheme will be enhanced from Rs.3 lakh to Rs. 5 lakh for loans taken through the KCC,” she said in her Budget speech.
Infra thrust
Dwelling on the larger macro issue, the Finance Minister has informed Parliament that “each infrastructure-related ministry will come up with a 3-year pipeline of projects that can be implemented in PPP mode. States will also be encouraged to do so and can seek support from the IIPDF (India Infrastructure Project Development Fund) scheme to prepare PPP proposals.She has proposed an outlay of Rs. 1.5 lakh crore for the 50-year interest-free loans to states for capital expenditure and incentives for reforms. “Building on the success of the first Asset Monetization Plan announced in 2021, the second Plan for 2025-30 will be launched to plough back capital of Rs.10 lakh crore in new projects. Regulatory and fiscal measures will be fine-tuned to support the Plan,” she added.
The Finance Minister has also announced the setting up of an Urban Challenge Fund of Rs. 1 lakh crore to implement the proposals for ‘Cities as Growth Hubs’, ‘Creative Redevelopment of Cities’ and ‘Water and Sanitation’ announced in the July Budget. This fund will finance up to 25 per cent of the cost of bankable projects with a stipulation that at least 50 per cent of the cost is funded from bonds, bank loans and PPPs. An allocation of Rs. 10,000 crore is proposed for 2025-26.
Sops to power reform
The Finance Minister has also announced that the Centre will incentivise electricity distribution reforms and facilitate augmentation of intra-state transmission capacity by states. “This will improve the financial health and capacity of electricity companies. Additional borrowing of 0.5 per cent of GSDP will be allowed to states, contingent on these reforms,” she said.
Tourist destinations
The Finance Minister has said that top 50 tourist destination sites in the country will be developed in partnership with states through a challenge mode. Land for building key infrastructure will have to be provided by states. Also, there will be a special focus on destinations related to the life and times of Lord Buddha.She has also indicated that Medical Tourism and Heal in India will be promoted in partnership with the private sector along with capacity-building and easier visa norms.
She has also announced the setting up of a high-level committee for regulatory reforms to review all non-financial sector regulations, certifications, licenses and permissions. The committee will be expected to make recommendations within a year. “The objective is to strengthen trust-based economic governance and take transformational measures to enhance ‘ease of doing business’, especially in matters of inspections and compliances. States will be encouraged to join in this endeavour,”she said.
MSMEs in focus
There are over one crore registered MSMEs, employing 7.5 crore people. These MSMEs are responsible for 45 per cent of the country’s exports. “To help them achieve higher efficiencies of scale, technological upgradation and better access to capital, the investment and turnover limits for classification of all MSMEs will be enhanced to 2.5 and 2 times, respectively.,” she said. “To improve access to credit, the credit guarantee cover will be enhanced for Micro and Small Enterprises from Rs. 5 crore to Rs. 10 crore, leading to additional credit of Rs. 1.5 lakh crore in the next 5 years; for start-ups, from Rs. 10 crore to Rs. 20 crore, with the guarantee fee being moderated to 1 per cent for loans in 27 focus sectors important for Atmanirbhar Bharat and for well-run exporter MSMEs for term loans up to Rs. 20 crore,” she said. The Budget has also announced the introduction of customized credit cards with a Rs. 5 lakh limit for micro enterprises registered on Udyam portal. In the first year, 10 lakh such cards will be issued.
Funds for start-ups
The Alternate Investment Funds (AIFs) for start-ups have received commitments of more than Rs. 91,000 crore. These are supported by the Fund of Funds set up with a Government contribution of Rs. 10,000 crore. “Now, a new Fund of Funds, with expanded scope and a fresh contribution of another Rs. 10,000 crore will be set up,” she said. A new scheme will be launched for 5 lakh women, Scheduled Castes and Scheduled Tribes first-time entrepreneurs. This will provide term loans up to Rs. 2 crore during the next 5 years.
Support for non-leather footwear
To enhance the productivity, quality and competitiveness of India’s footwear and leather sector, the Budget has announced the implementation of a focus product scheme will be impl. The scheme will support design capacity, component manufacturing and machinery required for production of non-leather quality footwear, besides the support for leather footwear and products. The scheme is expected to facilitate employment for 22 lakh persons, generate turnover of Rs. 4 lakh crore and exports of over Rs. 1.1 lakh crore.
Global hub for toys
The Finance Minister has also said that the Centre will implement a scheme to make India a global hub for toys. “The scheme will focus on development of clusters, skills and a manufacturing ecosystem that will create high-quality, unique, innovative and sustainable toys that will represent the ‘Made in India’ brand,” she added.
In a move aimed at formalising the gig economy, Nirmala Sitharaman has also announced that the government will provide identity cards and registration for gig workers. The initiative is expected to enhance social security and streamline benefits for the country’s growing freelance and contractual workforce.
Fiscal deficit
The Centre is set to achieve a fiscal deficit of 4.8% of India’s gross domestic product (GDP) in 2024-25, aiming to reduce it further to 4.4% for 2025-26, Nirmala Sitharaman said in her budget speech on Saturday.The government’s revised estimate on fiscal deficit is down from the 4.9% target that it had set for 2024-25. As a result of tax relief proposals, revenue of about ₹ 1 lakh crore in direct taxes and ₹ 2600 crore in indirect taxes will be forgone.
