Finance Minister Nirmala Sitharaman on Saturday announced significant income tax cuts for the middle class and unveiled a blueprint for next generation reforms for Viksit Bharat as she treaded a fine line between fiscal prudence and providing a thrust to growth.
Individuals earning up to Rs 12 lakh in a year will not have to pay any taxes after she raised the exemption threshold from Rs 7 lakh. An additional Rs 75,000 standard deduction is available for the salaried class.
Presenting her eighth straight budget, she also altered tax slabs for people earning above this threshold to help save up to Rs 1.1 lakh in taxes for those with income up to Rs 25 lakh in a year.
The raising of the rebate leads to 1 crore people not having to pay any tax, she said.
The overall tax slab regig will benefit 6.3 crore people, or more than 80 per cent of taxpayers.
“The new structure will substantially reduce taxes on the middle class and leave more money in their hands, boosting household consumption, savings and investment,” Sitharaman said presenting what was dubbed as ‘reformist’ budget for the next fiscal in Lok Sabha.
The Budget for April 2025 to March 2026 fiscal (FY26) proposed to raise foreign investment limit in insurance sector to 100 per cent from current 74 per cent and continued spending spree on infrastructure while raising allocations for social sectors as well as providing for measures for poor, youth, farmers and women.
All this she did while managing to stick to the fiscal consolidation roadmap, projecting a fiscal deficit of 4.4 per cent of the GDP in FY26 as against an estimated 4.8 per cent in the current year ending March 31.
Commenting on the announcements, Prime Minister Narendra Modi said it is a “people’s budget” that fulfils the dreams of every Indian and said that it is a “force-multiplier” that will boost consumption, investment and growth.
“The Budget lays a strong foundation to increase savings and make citizens partners in development,” he said.
Sitharaman’s budget has proposals aimed at boosting both consumption and investment, which in turn are expected to give a flip to domestic economic activity, protecting the growth outlook amidst global uncertainties. While maintaining the thrust on infrastructure development, it also continued to provide increasing support to the MSME and the agricultural sector.
Also announced were duty cuts on intermediaries and certain life saving drugs.
To balance the revenue lost, she budgeted a modest increase in capital spending at Rs 11.21 lakh crore in the next financial year compared to a lowered Rs 10.18 lakh crore in current fiscal. Besides, an increase in dividend expected from the Reserve Bank and other government-owned financial institutions will also help to contain the losses.
The budget comes against the backdrop of the Indian economy growing at its weakest pace since pandemic and rising geopolitical risks particularly with the new US President Donald Trump threatening to impose widespread tariffs including on India.
The 6.4 per cent GDP growth estimated for the current fiscal and 6.3 to 6.8 per cent in the next are well below the 8 per cent growth needed to meet the ambitious goal of making India a developed nation by 2047.
“Our endeavour will be to keep the fiscal deficit each year such that the central government debt remains on a declining path as a percentage of the GDP,” she said, projecting debt at 50 per cent of GDP by March 2031.
Other measures include a national mission to push high-yielding crops with a special focus on pulses and cotton production, hike in the limit of subsidised credit to farmers to Rs 5 lakh from Rs 3 lakh, missions to push manufacturing and exports, a new policy for labour intensive sectors like leather and footwear and a scheme to make India a global hub for toy manufacturing.
The finance minister also announced a social security cover for nearly 1 crore gig workers and a Rs 10,000 crore fund of funds for startups.
Another major announcement was setting a target of at least 100 gigawatt of electricity from nuclear energy by 2047 and amendment to nuclear liability regulations to allow private sector investment.
Sitharaman also announced reduction in duties on a raft of goods including open cells, while fully exempting critical minerals such as cobalt, scraps of lithium-ion battery, lead, zinc and a few others from import duty.
She proposed a hike in the threshold of tax collected at source on remittances under the RBI’s Liberalised Remittance Scheme from Rs 7 lakh to Rs 10 lakh, benefiting the travel and foreign exchange sectors. Students and individuals seeking medical treatment will also benefit from this.
Rationalising TDS provisions, the finance minister increased the thresholds for non deduction across various TDS provisions broadly ranging from Rs 5,000 to Rs 50,000. The threshold for TDS on rent has been increased from Rs 2.40 lakh to Rs 6 lakh.
That apart, omissions of higher TDS/TCS rates are now applicable for non-filers.
Commenting on the Budget, Christian de Guzman, Senior Vice President, Moody’s Ratings, said: “As the government unveiled its budget for 2025-26 amid a somewhat dampened macroeconomic backdrop as compared to recent years, it has had to slow the pace of fiscal consolidation to provide firmer support to growth.”
“In particular, announced tax relief measures have constrained the growth of revenue receipts, which will rise at its slowest pace since 2022-23; as such, falling expenditure as a share of GDP has borne the brunt of the projected narrowing of the fiscal deficit even as the emphasis on capital expenditure has been sustained,” he said.
“Although the Union government remains on track to meet its near-term policy goals, we do not expect a sufficient improvement in the debt burden, or the proportion of the budget earmarked for debt servicing to change our broader assessment that India’s fiscal strength will remain weaker than most of its investment-grade peers,” he added. (PTI)
Budget Highlights
DIRECT TAX
* No personal income tax for income up to Rs 12 lakh under the new regime
* Limit will be Rs 12.75 lakh for salaried taxpayers due to a standard deduction of Rs 75,000
* Revenue of about Rs 1 lakh crore in direct taxes will be forgone
* New Income-Tax Bill to be clear and simple
INDIRECT TAX
* Removes seven tariff rates
* Social Welfare Surcharge on 82 tariff lines that are subject to a cess exempted
INSURANCE SECTOR
* Foreign Direct Investment (FDI) in the insurance sector to be hiked to 100 per cent from 74 per cent
GOVT RECEIPTS
* Total receipts other than borrowings at Rs 34.96 lakh crore; total expenditure at Rs 50.65 lakh crore
* Net tax receipts at Rs 28.37 lakh crore
* Fiscal deficit at 4.4 per cent of GDP
* Gross market borrowings at Rs 14.82 lakh crore
* Capex expenditure at Rs 11.21 lakh crore or (3.1 pc of GDP)
AGRICULTURE SECTOR
* Prime Minister Dhan-Dhaanya Krishi Yojana – The programme to be launched in partnership with states, covering 100 districts, to benefit 1.7 crore farmers
* Government to launch 6-year ‘Mission for Aatmanirbharta in Pulses’ with focus on Tur, Urad and Masoor
* NAFED and NCCF to procure these pulses from farmers in next 4 years
* Comprehensive programme for vegetables and fruits
* Makhana Board to be established in Bihar to improve production, processing, value addition, and marketing of fox nuts
* Urea Plant with an annual capacity of 12.7 lakh metric tonnes to be set up at Namrup, Assam
MSME SECTOR
* Investment and turnover limits for classification of all MSMEs to be enhanced to 2.5 and 2 times, respectively
* Customised credit cards with Rs 5 lakh limit for micro-enterprises registered on Udyam portal, 10 lakh cards to be issued in 1st year
* New Fund of Funds, with expanded scope and a fresh contribution of Rs 10,000 crore to be set up
* New scheme for 5 lakh women, SC and ST first-time entrepreneurs to provide term-loans up to Rs 2 cr in the next 5 years announced
* Focus product scheme announced to facilitate employment for 22 lakh persons, generate a turnover of Rs 4 lakh cr and exports of over Rs 1.1 lakh crore
* Scheme to create high-quality, unique, innovative, and sustainable toys, making India a global hub for toys announced
* National Institute of Food Technology, Entrepreneurship and Management to be set up in Bihar
* National Manufacturing Mission covering small, medium and large industries for furthering “Make in India” announced
INVESTMENT AS ENGINE OF DEVELOPMENT
* 50,000 Atal Tinkering Labs to be set up in Government schools in next 5 years
* Broadband connectivity to be provided to all government secondary schools and primary health centres in rural areas under Bharatnet project
* Additional infrastructure to be created in the 5 IITs started after 2014 to facilitate education for 6,500 more students
* Centre of Excellence in Artificial Intelligence for education to be set up with a total outlay of Rs 500 crore
* 10,000 additional seats to be added in medical colleges and hospitals next year, adding to 75,000 seats in next 5 years
* PM SVANidhi scheme to be revamped with enhanced loans from banks, UPI-linked credit cards with a Rs 30,000 limit, and capacity-building support
* Government to arrange for identity cards, registration on e-Shram portal and healthcare under PM Jan Arogya Yojana for gig workers
* Infrastructure-related ministries to come up with a 3-year pipeline of projects in PPP mode; states also encouraged
* Support to states for infrastructure – Outlay of Rs 1.5 lakh crore proposed for the 50-year interest-free loans to states for capital expenditure and incentives for reforms
* Asset Monetisation Plan – Second Plan for 2025-30 to plough back capital of Rs 10 lakh crore in new projects announced
* Nuclear Energy Mission for research and development of Small Modular Reactors (SMR) with an outlay of Rs 20,000 crore to be set up, 5 indigenously developed SMRs to be operational by 2033
* Modified UDAN scheme announced to enhance regional connectivity to 120 new destinations and carry 4 crore passengers in next 10 years
* SWAMIH Fund 2 – A fund of Rs 15,000 cr aimed at expeditious completion of another 1 lakh dwelling units, with contributions from the government, banks and private investors announced
* ‘BharatTradeNet’ (BTN) for international trade to be set up as a unified platform for trade documentation and financing solutions.
