India’s Finance Minister, Nirmala Sitharaman, presented the Union Budget for 2025-26 on February 1 in Parliament. The budget introduces significant reforms, including the removal of income tax liability (under the new regime) for individuals earning up to INR 1.2 million annually, excluding special income. Additionally, the budget outlines reforms aimed at supporting startups and MSMEs, alongside a focus on key sectors for manufacturing growth.
1. Agriculture: Empowering farmers and achieving rural development
Recognizing agriculture as the backbone of the Indian economy, the government has introduced the ‘Prime Minister Dhan-Dhaanya Krishi Yojana’, covering 100 districts to enhance productivity, crop diversification, post-harvest storage, and irrigation infrastructure. Additionally, a six-year “Mission for Aatmanirbharta in Pulses” will focus on self-sufficiency in Tur, Urad, and Masoor, ensuring procurement support through central agencies like NAFED and NCCF.
To address rural underemployment, the government will launch a comprehensive ‘Rural Prosperity and Resilience’ program, integrating skill development, investment, and technology to generate sustainable rural employment opportunities, with a particular focus on rural women and small-scale farmers. The loan limit for Kisan Credit Cards has been increased from INR 300,000 to INR 500,000, providing greater financial security to farmers.
2. MSMEs: Strengthening small businesses for global competitiveness
MSMEs contribute nearly 45 percent to India’s exports, making them a vital component of economic growth. The Budget has enhanced investment and turnover limits for MSME classification to 2.5 and 2 times, respectively, facilitating greater access to capital and technology.
A new scheme targeting 500,000 first-time entrepreneurs from Scheduled Castes, Scheduled Tribes, and women will provide term loans of up to INR 20 million over the next 5 years. Additionally, the National Manufacturing Mission will drive the ‘Make in India’ initiative by integrating small, medium, and large industries into the global value chain, with a special focus on making India a global hub for toy manufacturing. The mission also has a mandate to focus on clean tech manufacturing for climate-friendly development and facilitating a future-ready workforce for in-demand jobs.
3. Investment: Infrastructure, innovation, and skilling
Investment remains a central theme in the Budget, categorized into three key areas—people, economy, and innovation.
- Investment in people:
- Establishment of 50,000 Atal Tinkering Labs in government schools.
- Broadband connectivity for all government secondary schools and primary health centers in rural areas under the BharatNet project.
- Five National Centers of Excellence for Skilling with global expertise to equip youth for manufacturing and technology sectors.
- A INR 5 billion Centre of Excellence in Artificial Intelligence for education.
- A structured initiative to provide Gig workers with identity cards, healthcare coverage under PM Jan Arogya Yojana, and their registration on the e-Shram portal.
- Investment in the economy:
- Infrastructure ministries will roll out a 3-year PPP project pipeline.
- INR 1.5 trillion interest-free loans to states for capital expenditure.
- The second Asset Monetization Plan (2025-30) aims to reinvest INR 10 trillion into new projects.
- Urban Challenge Fund of INR 1 trillion for urban redevelopment and water sanitation projects.
- Investment in innovation:
- INR 200 billion allocated to private sector-driven R&D initiatives.
- National Geospatial Mission to support urban planning.
- Gyan Bharatam Mission to survey, document, and conserve over 10 million manuscripts, alongside a National Digital Repository of Indian knowledge systems.
4. Exports: Enhancing global trade capabilities
A dedicated Export Promotion Mission, spearheaded by the Ministries of Commerce, MSME, and Finance, aims to integrate MSMEs into global supply chains. The ‘BharatTradeNet’ (BTN) digital platform will streamline trade documentation and financing solutions, improving ease of doing business.
The Budget also focuses on bolstering domestic manufacturing capacities to align with global supply chain demands. Key initiatives include:
- Infrastructure and warehousing enhancements for air cargo, particularly for high-value perishable horticulture produce.
- Support for domestic electronic equipment industries to capitalize on Industry 4.0.
- A National Framework for Global Capability Centers (GCCs) to boost services from emerging Tier 2 cities.
Financial sector reforms and investment climate
To sustain economic acceleration, the government is prioritizing regulatory and financial sector reforms to simplify compliance, expand services, and promote investment.
- FDI reforms: The Foreign Direct Investment (FDI) limit for insurance companies will increase from 74 percent to 100 percent, conditional on full premium investment within India.
- Regulatory overhaul:
- High-level committee for regulatory reforms will review non-financial sector regulations, licenses, and compliance measures.
- Investment friendliness index of states to foster competitive cooperative federalism.
- Financial Stability and Development Council (FSDC) to evaluate financial regulations and enhance responsiveness.
- Jan Vishwas Bill 2.0 to decriminalize over 100 legal provisions, furthering ease of doing business.
Taxation reforms: Measures impacting direct tax, indirect tax, crypto assets, international tax, and transaction tax
Relief for India’s middle class and low-income earners
The Budget proposes a structured direct tax reform, offering significant relief to the middle class. The revised tax structure under the New Tax Regime includes:
- Total income per annum Rate of tax
- INR 0 – 400,000 NIL
- INR 400,000 – 800,000 5%
- INR 800,000 – 1.2 million 10%
- INR 1.2 – 1.6 million 15%
- INR 1.6 – 2 million 20%
- INR 2.0 – 2.4 million 25%
- Above INR 2.4 million 30%
As Per tax experts, this means that a salaried individual—opting for the new tax regime—with a total income of up to INR 1.275 million will be exempt from tax due to the increase in the tax rebate from INR 25,000 to INR 60,000.
Additional tax relief measures
- Increased TDS (Tax Deducted at Source) threshold on interest earned by senior citizens from INR 50,000 to INR 100,000. For other resident individuals, the limit for TDS has been increased to INR 50,000 from the current INR 40,000. For mutual fund investments, the TDS threshold on dividends is increased to INR 10,000 from INR 5,000.
- TDS threshold on rent has been raised to INR 600,000 from INR 240,000.
- Time-limit extension for filing an updated tax return from 3-5 years, effective April 1, 2025. If filed after three years but within four years, an additional 60 percent tax will be payable, increasing to 70 percent if filed after 4 years but within 5 years.
- The filing of updated tax returns will be disallowed if a reassessment notice is issued after 4 years, unless the reassessment is subsequently dropped.
- Additionally, purchases made in India by non-residents for export will not constitute a significant economic presence from FY 2025-26 onwards.
- Proposal to extend the tonnage tax scheme to inland vessels registered under the Indian Vessels Act, 2021, to promote inland water transport from FY 2025-26.
- The deadline for the incorporation of eligible start-ups to avail of the 3-year tax holiday within their first 10 years has been extended from March 31, 2025, to March 31, 2030.
- The last date for investment by Sovereign Wealth Funds and Pension Funds to qualify for tax exemptions has been extended from March 31, 2025, to March 31, 2030.
- The threshold for Tax Collected at Source (TCS) on remittances under the Liberalized Remittance Scheme (LRS) extended to INR 1 million per financial year from the existing INR 700,000 per financial year. This revision impacts individuals sending money abroad for travel, education, and other expenses. It is also proposed that TCS be removed on remittances for education purposes, “where such remittance is out of a loan taken from a specified financial institution”.
New income tax bill 2025
A new Income Tax Bill (Bill 2025) is set to be introduced in Parliament next week. The bill is designed to be clear and concise, reducing the length of the existing law by nearly half. Its simplified structure aims to enhance tax certainty and minimize litigation.
Compliance for crypto investors
Starting April 1, 2026, a new annual reporting requirement for crypto assets will be introduced, outlining specific rules for reporting entities, information scope, reporting methods, and due diligence procedures. Additionally, from FY 2025-26, the definition of virtual digital assets (VDA) will be expanded to include any crypto asset utilizing cryptographic and distributed ledger technology for transaction validation and security.
Effective April 1, 2026 (FY 2025-26), a new presumptive taxation regime is proposed for non-residents providing services or technology for setting up an electronics manufacturing facility in India. Under this proposal, 25 percent of the total amount received or due to be received by a non-resident will be deemed as profits or gains, resulting in an effective tax rate of less than 10 percent on gross receipts.
Additionally, the provision for Significant Economic Presence (SEP) has been harmonized with business connection rules. Non-residents engaged in purchasing goods in India for export will no longer be subject to SEP regulations.
Notably, there are no specific proposals regarding the implementation of Pillar Two or the Global Minimum Tax in India.
Conclusion: A strategic budget for a resilient economy
The Union Budget 2025-26 has sought to deliver a balanced approach to economic expansion, fiscal prudence, and social inclusivity. By prioritizing investment, innovation, regulatory reforms, and tax rationalization, the government is hoping to achieve sustainable and broad-based economic growth – in particular, resuscitate consumption and incentivize private sector business activity.
Author Bio
