Budget 2025 Expectations | Balanced approach is needed to ensure sustainable revenue growth, says Kunal Gala, Partner, Deal Value Creation, BDO India

Finance Minister Nirmala Sitharaman will present the 8th consecutive Union Budget on February 1, 2025. Reports suggest that the government is mulling over cutting income tax for those who are earning up to Rs 15 lakh a year in February's budget, in turn providing relief to the middle class.

Taxpayers have pinned high hopes on the Union Budget FY 2025-26 documents and are keeping their fingers crossed regarding their expectations from the government's most important financial document of the year.

This is what Kunal Gala, Partner, Deal Value Creation, BDO India has to say--

“Digital infrastructure is likely to be a top priority in the Union Budget 2025, with continued investments being expected in projects like BharatNet to connect more than 6 lakh villages with high-speed broadband. Investments will also focus on expanding the 5G coverage which will be essential to enable the advancements in IoT, telemedicine, and smart city solutions.

These will contribute to India's digital transformation and bridge the rural-urban divide. To bolster this effort, subsidies for establishing data centers critical for cloud computing and AI-driven applications may be introduced which could attract global technology investments.

It will also be crucial to implement robust cybersecurity frameworks and to ensure compliance with the Data Protection Bill to protect digital assets as India’s digital economy becomes more and more critical to its GDP growth.

The Union Budget for the year FY26 is likely to face the double challenge of boosting up the economic growth and achieving fiscal consolidation. The GDP growth rate reduced to 5.4% in the second quarter of the financial year 2024-25 (against RBI projection of 6.8%) and the government has a fiscal deficit target of less than 4.5% of the GDP for the fiscal year 2025-26, so the spending priorities will have to be set properly. Corporate tax rates are not likely to be increased as India is looking to attract foreign capital, especially for large-scale projects. Investors remain cautious as Indian government bonds offer only ~ 2% higher yield than U.S.

Treasury notes, reflecting limited risk-adjusted returns. Delaying the fiscal deficit target by a year to put more money into infrastructure and to satisfy the middle class could be a reasonable approach to turn around the economic growth and to create jobs.

With as few as 7% of the population i.e. about 75 million people, filing returns last year and 63% of return-filing individuals paying no tax, there is a systemic problem concerning compliance and income disclosure. Since a small group of high earners are responsible for most of the taxes, there is the need for reforms that not only simplify the tax code but also expand its base.

The government is probably going to concentrate on making the system more inclusive and efficient, covering more of the population. Middle-class concerns such as compliance measures, tax complexity, and public services are critical to addressing the measures that need to be taken to keep a large population benefitted.

A balanced approach is necessary to ensure sustainable revenue growth and reduce reliance on indirect taxes, which disproportionately impact lower-income groups.”

Union Budget 2025 | Nirmala Sitharaman, who continues to be Finance Minister, will present her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', reports suggest there might be a tax relief for those making up to Rs 15 lakh per year. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.