Budget Updates from a Direct Tax Perspective
Finance Minister Nirmala Sitharaman has unveiled a series of reforms in the Union Budget 2025-26, aiming to stimulate economic growth and provide relief to various sectors. The following are the key highlights and announcements of the Union Budget 2025 presented by Finance Minister Nirmala Sitharaman today:
The government has introduced significant changes to the personal income tax structure to alleviate the compliance burden on taxpayers. The new tax regime is as follows:
Personal Income Tax Reforms:
No income tax up to Income of 12 lakhs – 12.75 lakhs limit for salaried person due to standard deduction of Rs. 75,000.
The new tax regime with new slabs and tax rates as under: –
Total income | Rate of tax |
Upto ` 4,00,000 | Nil |
From ` 4,00,001 to ` 8,00,000 | 5 per cent |
From ` 8,00,001 to ` 12,00,000 | 10 per cent |
From ` 12,00,001 to ` 16,00,000 | 15 per cent |
From ` 16,00,001 to ` 20,00,000 | 20 per cent |
From ` 20,00,001 to ` 24,00,000 | 25 per cent |
Above ` 24,00,000 | 30 per cent |
100% Tax Rebate upto Income of Rs.12 lacs
The forthcoming income tax bill is designed to be straightforward, featuring clear language to ensure easy comprehension for both taxpayers and administrators. This transparency aims to eliminate ambiguity, making the tax system more user-friendly.
Rationalization tax deducted at source (TDS) and tax collected at source (TCS) rates:
Limit for tax deduction on interest for senior citizens under Section 194A to be doubled from ₹50,000 to ₹1 lakh.
Annual threshold limit for TDS on rent under section 194I to be increased from ₹2.40 lakh to ₹6 lakh.
Threshold to collect tax at source on remittances under RBI’s Liberalized Remittance Scheme to be raised from ₹7 lakh to ₹10 lakh
Both TDS and TCS are being applied on any transaction relating to sale of goods to prevent such compliance difficulties TCS shall be omit.
Limit of Tax deduction for fees for Professional Services or Technical Services increased to Rs. 50,000.
Encouraging voluntary compliance
The time-limit to file updated returns for any assessment year, from the current limit of 2 years, to 4 years.
Reducing compliance burden
For small charitable trusts/institutions, period of registration has increased from 5 years to 10 years.
The annual value of two self-occupied properties can be claimed as Nil without any condition.
For Transfer Pricing, Scheme to be introduced to determine arm’s length price for a period of 2 years.
Ease of doing business
As interest is no longer payable on National Savings Scheme accounts, it is proposed to exempt withdrawals made from NSS by senior and very senior citizens.
It is proposed to extend the benefit provided under Section 80-IAC to startups for another period of five years, i.e. the benefit will be available to eligible start-ups incorporated before 01.04.2030.
Exemptions on Critical Minerals
To promote the manufacturing sector, the government has removed Basic Customs Duty (BCD) on waste and scrap of 12 critical minerals, including antimony, cobalt, tungsten, copper, lithium-ion batteries, lead, zinc, and cobalt powder. This move aims to secure the availability of these materials for domestic manufacturing.
Support for Gig Economy Workers
Recognizing the growing gig economy, the government plans to issue ID cards to one crore gig workers, particularly those associated with platforms like Swiggy, Zomato, Zepto, and BigBasket. This initiative will provide them with due recognition and access to social security benefits. Furthermore, these workers will be covered under the PM Jan Arogya Yojana, with streamlined registration through the e-Shram portal.
Patient Assistance Programs Exempted from BCD
Pharmaceutical companies’ patient assistance programs will be exempted from BCD, provided that medicines are supplied free of charge to patients. Additionally, 37 new medicines and 13 patient assistance programs will be added to the exemption list.
Sector-Specific Announcements
Start-ups: Benefits for start-ups will continue for five years from their inception.
Banking/Insurance: A Grameen credit score framework will be established for rural India, and the Foreign Direct Investment (FDI) limit in the insurance sector has been raised to 100%.
Housing: An allocation of ₹15,000 crore has been made for the completion of one lakh housing units.
Agriculture: A six-year mission has been launched to achieve self-reliance in oil seeds, and a five-year mission has been initiated to improve cotton yield. The Kisan Credit Card loan limit has been increased from ₹3 lakh to ₹5 lakh.
Education: Atal Tinkering Labs will be established in schools, broadband internet will be provided to government secondary schools, and additional infrastructure will be developed to increase student capacity at IITs, including the expansion of IIT Patna.
Healthcare: Daycare cancer centres will be set up in all district hospitals, with 200 centres planned by fiscal 2026. Six life-saving drugs will have a 5% duty, while 36 drugs will be exempted from basic customs duty.
Infrastructure: Public-Private Partnership (PPP) mode projects can be implemented over three years, with ₹1.5 lakh crore allocated for states to implement infrastructure reforms. Over 100 new regional airports are planned over the next decade, and the UDAN 2.0 scheme aims to connect 120 new airports, focusing on the Northeast and Bihar.
Economy: An investment-friendly index will be introduced to promote competition among states. The fiscal deficit target has been revised to 4.8% for fiscal year 2025, with capital expenditure set at ₹10.18 lakh crore.
Women’s Development: Term loans of up to ₹2 crore will be available for first-time women entrepreneurs from SC/ST and backward classes.
Rural India: Nutritional support will be provided for over eight crore children and one crore lactating mothers.
Make in India: The National Manufacturing Mission will offer policy support and a monitoring framework, a clean technology manufacturing mission has been launched, and a Nuclear Energy Mission focused on research and development has been initiated.
Water Management: The Jal Jeevan Mission has been extended until 2028.
Technology: A Centre of Excellence in AI will be established with an allocation of ₹500 crore, and additional capital goods will be exempted to promote EV battery manufacturing.
Tourism: Visa fee waivers will be provided for certain tourist groups to boost tourism.
Significance of Budget 2025
Budget 2025 is pivotal as it proposes strategic allocations and reforms to boost economic growth, create jobs, and strengthen social welfare programs. The emphasis is on inclusive development and improving the living standards of citizens.
The Budget 2025-26 focuses on critical issues such as tax policies, expenditure priorities, and subsidies. One of the key expectations is a revision in the tax slabs, mainly aimed at providing relief to the middle class. However, an important consideration here is that there might be additional covenants with respect to calculation of taxes under either regimes which will be clarified after the proposed bill is notified.
To check out the Key Features of the Budget 2025 – Click here.
To read the complete Budget 2025 Speech – Click here.