Union Budget 2025-26: Economic Growth & Direct Tax Reforms

The Budget 2025 session of the Parliament begun on 31^st January, 2025 with the address of President of India and tabling of Economic Survey 2024-25.

The Union Finance Minister has presented her 8^th consecutive Budget for the year 2025-26 on  1^st February, 2025 in the Parliament and also introduced Finance Bill, 2025 on the Lok Sabha. Along with Budget, a complete set of Budget documents is also presented to the Parliament.

This year’s Budget has been presented in the background of economic outlook tabled in the Parliament on 31^st January, 2025 in the form of Economic Survey 2024-25.

According to Economic Survey, GDP growth is forecast to be in the range of 6.3% to 6.8% for FY 2026 in the back drop of robust economic fundamentals. India will be the third largest economy in the world in next few years by 2030. Its median age of 28 years is the key driver of the growth. India’s economic prospects for FY 2026 are balanced.

This year’s Budget focuses to accelerate growth, secure inclusive development, enhance private sector investments, uplift household sentiments and enhance spending power of middle class in the country. Its underlying theme is to unlock nation’s potential for prosperity, global positioning and to march forward resolutely.

The Finance Bill, 2025 proposals are now the subject matter of Parliament which will be enacted in second part of the Budget session in March, 2025. The provisions aimed at retrospective amendment, say in relation to ITC in not being taken in right spirit by various stakeholders as it amounts to tax terrorism. The Union lost the case on merits in apex court. Our 1^st February issue was a special issue focused on Union Budget 2025-26.

Reserve Bank of India has projected a GDP growth of 6.7% for FY 2026 as against 6.6% for FY 2025. Owing to tax relief in Budget, domestic consumption is likely to remain robust while fixed investment is expected to recover supported by higher capacity utilization and Government’s focus on capex. After a gap of 5 years, RBI has cut repo rate by 25 bps which will also help small borrowers and businesses. All these are expected to boost consumption and eventually tax revenues.

A. Union Budget – General

• Budget makes further efforts to:

a. accelerate growth

b. secure inclusive development

c. invigorate private sector investments

d. uplift household sentiments, and

e. enhance spending power of India’s rising middle class.

• Aspiration for a ‘Viksit Bharat’ encompasses:

a. zero-poverty

b. hundred per cent good quality school education

c. access to high-quality, affordable, and comprehensive healthcare

d. hundred per cent skilled labour with meaningful employment

e. seventy per cent women in economic activities; and

f. farmers making our country the ‘food basket of the world’.

• Major areas of Budget focus:

a. Spurring agricultural growth and productivity

b. Building rural prosperity and resilience

c. Taking everyone together on an inclusive growth path

d. Boosting manufacturing and furthering make in India

e. Supporting MSMEs

f. Enabling employment-led development

g. Investing in people, economy and innovation

h. Securing energy supplies

i. Promoting exports, and

j. Nurturing innovation.

• Major transformation in domains of:

a. Taxation

b. Power sector

c. Urban development

d. Mining

e. Financial sector, and

f. Regulatory reforms.

• Measures for agriculture- enhanced ACC credit, National Mission for high yielding seeds and cotton productivity, pulses.
• India Post to act as catalyst of rural economy.
• Measures for MSMEs, labour intensive sectors and manufacturing sector
• Enhanced credit guarantee to MSMEs and startups
• Centre of excellence in artificial intelligence for education, with a total outlay of Rs. 500 crore
• Lakh crore urban challenge fund for ‘cities as growth hubs’
• Focus on investing in people, economy, innovation and startup, labour welfare
• Measures for export promotion-Bharat Trade Net, framework for global supply chain, warehousing for air cargo
• Regulatory reforms – high level Committee for reforms, launch of investment index of states.

 B. Economy

• Aspiration for a Vikisit Bharat by 2047
• Indian economic growth remains steady amid global uncertainties
• Indian Economy is the fastest growing economy among all major global economies
• Indian GDP to be 3.9 trillion USD in 2025; 6.3 trillion USD by FY 2030
• India’s economic growth to be between 6.3 to 6.8% in FY 2025-26
• Fiscal deficit is estimated to be 4.4% of GDP
• Strong advocacy of de-regulation and reforms including labour reforms for ease of doing business and GDP growth
• Corporate profits and wage growth not in sync-needs improvement
• Agriculture is the sector of future and likely to grow by 3.8% in FY 2025

 C. Direct Taxation

• New Income Tax Bill to be tabled next week which will be simple to understand, leading to tax certainty and reduced litigation.
• New Bill will be clear and direct in text, about half of the present law.
• Personal taxation made easy
• Major tax relief to middle class
• Salaried class to pay nil income tax upto Rs. 12.75 lakh per annum in new tax regime
• New tax structure will substantially reduce the taxes of middle class and leave more money in their hands, boost household consumption, savings and investments.
• TDS limit on senior citizens’ deposit interest raised to Rs. 1 lakh from Rs. 50,000 existing limit.
• TDS threshold on rental income increased to Rs 6 lakh from Rs 2.4 lakh existing
• TCS on remittance for education withdrawn, if loans taken from financial institutions.
• Higher TDS to apply only in non-PAN cases
• In case of upto two self occupied houses, annual value to be considered as nil.
• New proposed simplified Income tax slabs under New Regime of tax:

• Benefit on new slab rates on various level of income: (all figures in INR)