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Budget 2025: Finance minister Nirmala Sitharaman said the government is focused on boosting private investment to strengthen growth, increasing funding in the agriculture sector, and enhancing the spending power of India’s middle class
Union finance minister Nirmala Sitharaman presents Budget 2025 in the Lok Sabha. (Pic/PTI)
The big bang move of zero income tax for an annual income of up to Rs 12 lakh is the centrepiece of the Narendra Modi government’s Budget 2025 presented on Saturday in Parliament.
In a massive relief for the middle class in particular, finance minister Nirmala Sitharaman raised the I-T rebate level under the new tax regime to an annual income of Rs 12 lakh from Rs 7 lakh until now.
She also tweaked tax slabs in a manner that the highest tax rate in the country—30%—will come into effect only after one reaches an annual income of Rs 24 lakh per annum, or Rs 2 lakh per month.
This, effectively, means that those with an annual income of up to Rs 12.75 lakh will not have to pay any tax, including a standard deduction benefit of Rs 75,000.
Sitharaman said the government is focused on boosting private investment to strengthen growth, increasing funding in the agriculture sector, and enhancing the spending power of India’s middle class.
How tax slabs, rates will change
“Slabs and rates are being changed across the board to benefit all taxpayers. The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings, and investment,” the minister said.
Under the proposed slabs, for people earning more than Rs 12 lakh per annum, there will be nil tax for income up to Rs 4 lakh, 5 per cent for income between Rs 4 and 8 lakh, 10 per cent for Rs 8-12 lakh, 15 per cent for Rs 12-16 lakh. A 20 per cent income tax will be levied on income between Rs 16 and 20 lakh, 25 per cent on Rs 20-24 lakh and 30 per cent above Rs 24 lakh per annum.
The old tax regime remains unchanged. The shift towards the new tax regime (NTR) has been steadily growing, and the recent change is expected to encourage more individuals to transition to NTR due to its enhanced appeal. In the assessment year (AY) 2024-25, out of the total 7.28 crore income tax returns (ITRs) filed for AY 2024-25, 5.27 crore (72 per cent) were submitted under NTR, compared to 2.01 crore ITRs filed under the old tax regime (OTR).
The government hopes that the additional money left in the pockets of taxpayers will be spent, and that will kick-start a growth process which will also incentivise companies to begin investing in new capacities, thus creating new jobs and incomes.
Sitharaman also said TDS, or tax deduction at source, rates will be rationalised, and the limit for tax deduction for senior citizens will be doubled to Rs 1 lakh.
Further, she also proposed doubling the deadline to file updated returns to four years.
New tax code next week
The minister also confirmed that a new direct tax code to simplify compliance for individual taxpayers will be introduced next week.
When Sitharaman presented the full 2024-25 budget in July, she had said the goal was to make current income tax laws simpler to read and understand and reduce the number of pages of the I-T Act of 1961 by a staggering 60 per cent.
The 1961 Act, which deals with the imposition of direct taxes, i.e., personal and corporate tax, as well as those on securities transactions, gifts, and wealth, has 23 chapters and 298 sections.
Among the biggest expected changes is the scrapping of the concept of financial year (FY) and accounting year (AY), which often led to confusion. It may also introduce taxes, possibly at five per cent, on income from insurance policies from the Life Insurance Corporation.
These were not taxed under the 1961 law.
Also, taxes on dividend income (now at slab rates) may be standardised at 15 per cent. But perhaps most significant is that this new code will not offer an option between the old and new regimes.
Despite the massive tax cut, which will cost the government around Rs 1 lakh crore in foregone revenues, the fiscal deficit (or the level of money borrowed) of the government will be reduced further to 4.4% (of the GDP) in 2025-26, the finance minister said.
Sitharaman said her government will initiate reforms in sectors like finance, power, urban development and mining, with “transformative reforms in taxation”.
“Democracy, demography, and demand are the key support pillars in our journey towards Viksit Bharat. The middle class provides strength for India’s growth. This government, under the leadership of Prime Minister Modi, has always believed in the admirable energy and ability of the middle class in nation-building,” Sitharaman said in her budget speech.
Sitharaman on Saturday made history as she presented a record eighth consecutive budget, which came in the backdrop of a slowdown in the economy and demand for tax cuts for the middle class. This will take Sitharaman closer to the record of 10 budgets that were presented by former Prime Minister Morarji Desai over different time periods. Desai presented a total of six budgets during his tenure as finance minister from 1959 to 1964 and four budgets between 1967 and 1969.
Boost for rural economy
Sitharaman also gave a boost to the farm sector and rural consumption through measures such as enhanced credit access, a renewed focus on pulses, and targeted support for aspirational districts.
The Prime Minister Dhan-Dhaanya Krishi Yojana through the convergence of existing schemes and specialised measures is expected to cover 100 districts with low productivity, moderate crop intensity and below-average credit parameters, benefitting 1.7 crore farmers.
A six-year mission has also been launched to achieve self-reliance in pulses, with a focus on tur and masoor, further supporting agricultural growth.
The Centre has also enhanced the short-term loan limit under the Kisan Credit Card (KCC) scheme from Rs 3 lakh to Rs 5 lakh for 7.7 crore farmers, fishermen, and dairy farmers.
India Post, more than 150 years old and the world’s largest postal network, will be transformed into a “large logistics organisation” with 1.5 lakh rural post offices, said the minister.
She promised that India Post’s transformation would work as a catalyst for the rural economy.
Focus also on gig workers, nuclear power, tourism, AI
The government also plans to formally register India’s gig workers and ease their access to healthcare. Sitharaman said the government will issue them identity cards and maintain a national registry that will ensure their inclusion in welfare initiatives.
India’s gig economy could employ more than 23 million people by 2030, according to estimates by government think tank NITI Aayog.
Sitharaman announced a new fund for startups and said the government will provide more money to promote innovation in partnership with the private sector and launch programmes to push manufacturing and exports. The share of manufacturing in India’s economy is close to 17%, short of its aimed goal of 25%.
The government will infuse more money to increase tourism-led employment in several Indian states and help with building infrastructure and boosting air connectivity to 120 new destinations over 10 years, the minister said.
She also announced the Nuclear Energy Mission to drive India’s transition toward clean energy, with a goal of developing at least 100 GW of nuclear power by 2047.
Budget 2025 also placed a significant emphasis on new and emerging technologies, as the finance minister unveiled a national framework for Global Capability Centres (GCCs) and announced a Rs 500 crore Centre of Excellence in Artificial Intelligence (AI) dedicated to education. Additionally, she indicated that a deep tech Fund of Funds will be developed to support the next generation of startups. The government allocated Rs 2,000 crore to India’s AI Mission, marking a remarkable 262 per cent increase from the previous year’s budget share of Rs 551.75 crore.
Boost for Bihar in election year
The budget mentioned several special schemes and welfare measures for Bihar, which will have assembly elections later this year.
Sitharaman announced the setting up of a board for the makhana, or lotus nuts, industry to oversee and improve manufacturing, processing, and value addition of the product in the state. She also said greenfield airports, referring to those built on previously undeveloped or empty greenfield land, would be set up to meet future aviation needs, including the demand for international flights.
(With agency inputs)
