India Union Budget 2025: A Comprehensive Overview

 

India Union Budget 2025: A Comprehensive Overview

On February 1, 2025, Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26 in the Lok Sabha. This budget, hailed as a "people's budget" by Prime Minister Narendra Modi, aims to spur economic growth, enhance savings, and make citizens active participants in India's development journey. The budget has facilitated the Ease of doing business (EoDB),  paying taxes (EoPT),  Living (EoL),  Savings (Eos) , Investment (EoI) and Consumption (EoS).

Reforms in Six Domains

The budget will initiate reforms in six key domains:

Taxation: Simplifying tax structures and reducing tax rates can increase compliance and boost revenue.

Urban Development: Investing in urban infrastructure can improve living standards and attract investments.

Mining: Reforms can enhance efficiency and sustainability in the mining sector.

Financial Sector: Strengthening regulations and promoting financial inclusion can stabilize the economy.

Power: Enhancing power infrastructure can support industrial growth and improve energy access.

Regulatory Reforms: Streamlining regulations can reduce bureaucratic hurdles and foster a business-friendly environment.

Budget Estimates 2025-26

• The total receipts other than borrowings and the total expenditure are estimated at ₹ 34.96 lakh crore and ₹ 50.65 lakh crore respectively.
• The net tax receipts are estimated at ₹ 28.37 lakh crore.
• The fiscal deficit is estimated to be 4.4 per cent of GDP.
• The gross market borrowings are estimated at ₹ 14.82 lakh crore.
• Capex Expenditure of ₹11.21 lakh crore (3.1% of GDP) earmarked in FY2025-26.

Fiscal Deficit at 4.4% of GDP

The fiscal deficit is projected to be 4.4% of GDP. A lower fiscal deficit indicates better fiscal management and reduced borrowing needs. It can lead to lower interest rates, increased investor confidence, and overall economic stability.

Scheme for Determining Arm's Length Price of International Transactions

A scheme to determine the arm's length price of international transactions for a block period of three years has been introduced to streamline transfer pricing and provide an alternative to yearly examination. This scheme aims to simplify the transfer pricing process, reduce compliance burden, and provide more certainty to businesses. It can lead to better tax compliance and reduced litigation.

Tax Exemption on Withdrawals from National Savings Scheme

Tax exemption will be provided on withdrawals made from the National Savings Scheme by individuals on or after 29th August, 2024. This measure will encourage more people to invest in the National Savings Scheme, as they can withdraw their savings without tax implications. It can lead to higher savings rates and financial security for individuals.

Personal Income Tax Reforms

No Tax Up to ₹12 Lakh: Under the new tax regime, individuals with an annual income up to ₹12 lakh will not have to pay any income tax. More than 1 crore people will be benefitted by this new rate.

Standard Deduction for Salaried Individuals: Salaried individuals will enjoy a standard deduction of ₹75,000, effectively making no tax payable up to ₹12.75 lakh.

Increased Rebate Limit: The rebate limit under Section 87A has been increased from ₹7 lakh to ₹12 lakh, providing a rebate of ₹60,000.

New Tax Slabs: Revised tax rates for various income ranges have been proposed. For example, income between ₹12 lakh and ₹16 lakh will be taxed at 15%, and income between ₹16 lakh and ₹20 lakh at 20%.

Senior Citizens. Tax deduction limit doubled from ₹50,000 to ₹1 lakh**: This increase in the tax deduction limit for senior citizens will provide them with additional financial relief, helping them manage their expenses better. It also reflects the government's commitment to supporting the elderly population.

TDS on Rent.  Annual limit increased from ₹2.40 lakh to ₹6 lakh. Raising the threshold for Tax Deducted at Source (TDS) on rent will benefit landlords, especially those with higher rental incomes. It will reduce the administrative burden on tenants and landlords, making the rental market more attractive.

Self-Occupied Properties: Taxpayers can now claim the annual value of 2 self-occupied properties (previously 1) without any conditions. This change will benefit homeowners with multiple properties, allowing them to save on taxes. It encourages investment in real estate and provides relief to those who own more than one home.

TDS on Insurance Commissions: Reduction in TDS rates for insurance commissions.

This will put more money in the hands of consumers, resulting in higher consumption.

The estimated savings by Tax payers is Rs.100,000 cr on account of Changing the tax slabs. Assuming that they would save Rs.30,000 cr.  Rs.70,000 cr could go for consumption. Assuming that Rs.50,000 cr would be used as their contribution for availing consumer loans, 4 times borrowing of Rs.50,000 cr will be Rs.200,000 cr.

Threshold Limit for TCS on LRS Remittances Increased

The threshold limit for Tax Collected at Source (TCS) on Liberalized Remittance Scheme (LRS) remittances has been increased from ₹7 lakh to ₹10 lakh. This change will make it easier for individuals to remit money abroad for various purposes, such as education, travel, and investment. It can boost outbound tourism and international education.

Compliance and Simplification

Extended Timeline for Filing Updated Returns : The time limit for filing updated returns has been extended from 2 to 4 years.

Decriminalization of Delayed TDS/TCS Payments: The government proposed removing higher TDS/TCS for delayed payments to reduce compliance burden.

Safe Harbour Rules Expansion : Expansion of safe harbour rules to provide more certainty and reduce litigation.

Other Tax Proposals

Presumptive Taxation Scheme: Extension to non-resident service providers for electronics manufacturing.

Incentives for International Financial Services Centres (IFSC): Tax exemptions for ship leasing and life insurance policies.

Trust Registration Validity: Increased from 5 to 10 years for certain conditions.

Scheme for Arm’s Length Pricing

Introduction of a scheme to determine the arm’s length price of international transactions for a block period of 3 years. This aims to reduce litigation and provide certainty in international taxation. By setting a fixed price for a block period, businesses can plan their finances better and avoid disputes with tax authorities. This move is expected to enhance the ease of doing business in India and attract more foreign investments.

Expansion of Safe Harbour Rules.

Scope of safe harbour rules expanded to reduce disputes and provide clarity in cross-border transactions: Safe harbour rules provide a simplified way for businesses to comply with transfer pricing regulations. By expanding these rules, the government aims to reduce the compliance burden on businesses and minimize disputes with tax authorities. This will likely encourage more multinational companies to set up operations in India, boosting economic growth.

Simplification: Removal of 7 Tariff Rates

The government has removed seven customs tariff rates to streamline the customs duty structure. This simplification reduces the number of tariff slabs from 14 to 8, including a zero rate.

This will make the customs duty structure more straightforward and easier to navigate for businesses. It will reduce administrative complexities and help in faster processing of imports and exports, thereby enhancing ease of doing business in India.

Cess and Surcharge: Limiting to One

The budget proposes that not more than one cess or surcharge will be applied on customs duties. Additionally, lower cess rates will be applied on certain items to reduce the tax burden.

This will lower the overall tax burden on imported goods, making them more affordable. It will also reduce the complexity of calculating customs duties, benefiting both businesses and consumers.

Sector-Specific Exemptions: Make in India

Exemptions have been provided for open cell panels for LED/LCD TVs, looms for textiles, and capital goods for lithium-ion batteries used in mobile phones and electric vehicles (EVs).

These exemptions will boost domestic manufacturing by reducing the cost of production for these sectors. This will encourage investment in these industries, leading to job creation and economic growth.

 Promotion of MRO (Maintenance, Repair, and Overhaul)

A 10-year exemption has been granted for goods used in shipbuilding and shipbreaking. Additionally, the time limit for the export of railway goods imported for repairs has been extended.

These measures will support the shipbuilding and railway sectors by reducing costs and encouraging exports. This will enhance the competitiveness of Indian industries in the global market.

Export Promotion

Duty-free inputs have been provided for the handicraft and leather sectors to boost exports.

This will make Indian handicrafts and leather products more competitive in international markets, leading to increased exports and foreign exchange earnings.

MSME Classification and Credit Guarantee

Investment Limit Increase: Raising the investment limit for MSME classification to 2.5 times and doubling turnover limits will allow more enterprises to qualify as MSMEs, enabling them to access various benefits and incentives. Credit Guarantee Enhancement: Enhancing the credit guarantee cover for MSMEs and start-ups will improve their access to finance, encouraging innovation and growth.

Trade Facilitation

Provisional Assessment. A time limit has been fixed for the finalisation of provisional assessments.

Voluntary Declaration. A new provision for voluntary declaration of material facts post-clearance has been introduced, with interest but without penalty.

IGCR Rules Amendment. The time limit for filing quarterly statements has been extended to 1 year instead of monthly.

These measures will improve trade facilitation by making the customs process more efficient and transparent. They will reduce delays and uncertainties, benefiting businesses engaged in international trade. Overall, these proposals aim to simplify the customs duty structure, reduce the tax burden, and promote domestic manufacturing and exports. They are expected to enhance the ease of doing business, attract foreign investments, and boost economic growth.

Export Promotion Mission

The Union Budget 2025 announced an Export Promotion Mission with a budgetary allocation of ₹2,250 crore. This mission aims to facilitate easy access to export credit, provide cross-border factoring support, and help MSMEs tackle non-tariff measures in overseas markets. The mission will be driven jointly by the Ministries of Commerce, MSMEs, and Finance.

This initiative is expected to boost India's export competitiveness by making it easier for businesses, especially MSMEs, to access credit and navigate international trade barriers. By addressing non-tariff measures, it can help Indian products become more competitive in global markets, potentially increasing export volumes and contributing to economic growth.

BharatTradeNet

The Budget also introduced  “BharatTradeNet”, a digital public infrastructure for international trade. This platform will provide a unified system for trade documentation and financing solutions, complementing the Unified Logistics Interface Platform.

BharatTradeNet is expected to streamline trade processes, reduce compliance burdens, and improve logistics efficiency. By providing a single platform for trade documentation, it can simplify the export-import process, reduce transaction costs, and enhance the ease of doing business for exporters and importers.

Warehousing for Air Cargo

The Budget includes plans for the upgradation of infrastructure and warehousing for air cargo, particularly for high-value perishable horticulture produce. This initiative aims to improve the handling and storage of air cargo, ensuring that perishable goods are transported efficiently and safely.

Upgrading warehousing infrastructure for air cargo can enhance the efficiency of transporting perishable goods, reducing spoilage and ensuring that high-value products reach their destinations in optimal condition. This can boost the export of perishable items, support the agricultural sector, and contribute to higher export revenues. Overall, these proposals are designed to enhance India's export capabilities, improve trade efficiency, and support the growth of MSMEs and the agricultural sector. By addressing key challenges in international trade, they can help India achieve its export targets and strengthen its position in the global market.

Inclusive Development and Boosting Middle-Class Spending

The focus on inclusive development and boosting middle-class spending aims to ensure that economic growth benefits all sections of society. By increasing disposable income for the middle class, the government hopes to stimulate consumption, which in turn can drive economic growth. This approach can lead to a more balanced and equitable development, reducing income disparities and fostering social stability.

Support for National Cooperatives Development Corporation

Providing support to the National Cooperatives Development Corporation for its lending operations will strengthen the cooperative sector, which plays a crucial role in rural development and financial inclusion. This support can enhance the financial stability of cooperatives and enable them to offer better services to their members.

Kisan Credit Card and Agricultural Schemes

Kisan Credit Card (KCC): Increasing the loan limit from Rs 3 lakh to Rs 5 lakh under the KCC will provide farmers with greater financial flexibility, helping them invest in better inputs and modern equipment.

Atamnirbharta in Pulses: The 6-year programme aims to achieve self-sufficiency in pulses, reducing dependency on imports and ensuring stable prices for consumers.

Dhan Dhanya Krishi Yojna: This scheme will cover 100 districts with low productivity, aiming to enhance agricultural productivity, adopt sustainable practices, and improve irrigation and storage facilities.

Mission for Cotton Production

The 5-year mission to promote cotton production focuses on improving productivity and sustainability, particularly for extra-long staple cotton varieties. This initiative will support farmers, enhance the quality of cotton, and rejuvenate India's traditional textile sector.

Scheme for Footwear and Leather Sector

The dedicated scheme for the footwear and leather sector is expected to create 22 lakh jobs, generate ₹4 lakh crore in revenue, and boost exports to over ₹1.1 lakh crore. This will enhance the sector's global competitiveness and contribute significantly to the economy.

Scheme for Toys Sector

The dedicated scheme for the toys sector aims to make India a global manufacturing hub. By developing clusters, enhancing skills, and creating a manufacturing ecosystem, the scheme will promote high-quality, innovative, and sustainable toy production.

National Centres for Skilling in Manufacturing

These centres will enhance the skills of the youth, making them more employable in the manufacturing sector. This will boost India's competitiveness globally and support the "Make in India" initiative.

Expansion of Capacity in IITs

Doubling the capacity of IITs over the last decade and adding infrastructure for 6,500 more students will increase the number of highly skilled engineers and researchers, contributing to technological advancements and innovation.

Additional Infrastructure for New IITs

Creating additional infrastructure will accommodate more students, ensuring that more individuals have access to quality higher education and research opportunities.

75,000 Medical Seats in Next 5 Years

Increasing the number of medical seats will address the shortage of healthcare professionals in India, improving healthcare services and accessibility.

10,000 Fellowships under PM Research Fellowship Scheme

Providing fellowships for technological research will encourage innovation and research excellence in IITs and IISc, leading to cutting-edge technological advancements.

New Fund of Funds for Startups

This fund will provide financial support to startups, fostering entrepreneurship and innovation, and contributing to economic growth.

New Scheme for First-Time Entrepreneurs

Supporting first-time entrepreneurs from women, Scheduled Castes, and Scheduled Tribes will promote inclusivity and economic empowerment, helping to reduce poverty and inequality.

Centre of Excellence in AI for Education

Establishing a centre for AI in education will revolutionize the educational system, making it more efficient and equitable through AI-driven innovations.

Urban Challenge Fund

This fund will transform cities into growth hubs by financing bankable projects, improving infrastructure, and promoting sustainable urban development.

Revamp of PM Swanidhi Scheme

Increasing loan limits and introducing a UPI-linked credit card will provide better financial support to street vendors, enhancing their livelihoods and economic stability.

Identity Card Issuance and e-Shram Portal Registration for Gig Workers

Facilitating identity card issuance and registration will provide social security and insurance coverage to gig workers, ensuring their well-being and financial security.

3-Year Pipeline of Projects in PPP Mode

Each infrastructure-related ministry is to come up with a 3-year plan to be implemented in PPP mode. An outlay of ₹1.5 lakh crore is proposed for 50-year interest-free loans. This initiative aims to boost infrastructure development by leveraging private sector efficiency and investment. The interest-free loans will reduce the financial burden on states, making it easier for them to undertake large-scale projects. This could lead to improved infrastructure, job creation, and overall economic growth.

100GW Nuclear Energy by 2047

Setting up of mini nuclear plants will be encouraged to achieve 100GW nuclear energy capacity by 2047. This ambitious target will help India transition to cleaner energy sources, reducing reliance on fossil fuels and lowering carbon emissions. It will also create opportunities for technological advancements and job creation in the nuclear energy sector.

Modified UDAN Scheme

The modified UDAN scheme will connect 120 new destinations and cater to 4 crore passengers over the next 10 years. This will enhance regional connectivity, making air travel more accessible and affordable for millions of people. It can boost tourism, trade, and economic development in underserved areas.

Tourism Initiatives

Mudra loans for homestays, promotion of medical tourism and 'heal in India', and development of top 50 tourism destination sites in partnership with states. These initiatives will diversify and strengthen India's tourism sector, attracting both domestic and international tourists. It will create jobs, promote cultural exchange, and generate revenue for local communities.

Global Capability Centres (GCCs)

A national guidance framework to promote GCCs in Tier II/III cities and rural areas. This will encourage the establishment of GCCs outside major urban centres, promoting balanced regional development and creating high-skilled job opportunities in smaller towns and rural areas.

Centralized KYC System

Implementation of a centralized KYC (Know Your Customer) system. This will streamline the process of verifying customer identities, reducing paperwork and improving efficiency for financial institutions. It will enhance security and compliance while making it easier for customers to access financial services.

Grameen Credit Score for Self-Help Groups

Banks will be required to maintain a Grameen credit score for self-help groups.  This will improve financial inclusion by providing better access to credit for self-help groups, empowering them to undertake entrepreneurial activities and improve their livelihoods.

Model Bilateral Investment Treaty

Drafting of a model bilateral investment treaty to attract foreign investment.  This will create a more favourable environment for foreign investors, boosting foreign direct investment (FDI) and fostering economic growth. It will also enhance India's global trade relations and competitiveness.

Insurance FDI Hiked from 74% to 100%

The Foreign Direct Investment (FDI) limit in the insurance sector has been increased from 74% to 100%. This move is expected to attract more foreign investment into the insurance sector, leading to increased competition, better services, and potentially lower premiums for consumers. It can also result in the infusion of advanced technology and expertise from global players.

Investing in Research, Development, and Innovation ₹20,000 Crore

₹20,000 crore has been announced for private-sector driven Research, Development, and Innovation initiative. This investment aims to boost innovation and technological advancements in the private sector. It can lead to the development of new products, services, and solutions, enhancing India's global competitiveness and creating high-skilled jobs.

FastTrack Merger for Companies

FastTrack merger process for companies has been introduced.  This initiative aims to simplify and expedite the merger process, making it easier for companies to consolidate and grow. It can lead to increased efficiency, better resource utilization, and stronger market presence for merged entities.

In conclusion, the Union Budget 2025-26 aims to balance growth drivers with fiscal prudence. By focusing on income tax reforms, technology, energy, agriculture, MSMEs, infrastructure, healthcare, and education, the budget seeks to create a more prosperous and self-reliant India.