Union Budget 2025 | Tax cushion for middle-class berth

FM aims to fuel growth by putting more money in people’s hands

New Delhi: Faced with the concern of a slowing economy, Finance Minister Nirmala Sitharaman rolled out tax cuts across the board and rejigged income tax slabs, a clear signal that the Modi government has prioritised the revival of urban consumption and demand by putting more money in the hands of the middle class.

Effectively removing any tax liability for those earning up to Rs 12 lakh per annum, Sitharaman brought in new slabs, easing the burden on taxpayers earning up to Rs 24 lakh a year.

“As we complete the first quarter of the 21st century, continuing geopolitical headwinds suggest lower global economic growth over the medium term,” Sitharaman said at the beginning of her speech, mindful of worsening global headwinds, including President Donald Trump’s tariff warnings.

However, there were a few glaring omissions. The FM did not mention any update on the various employment boosting schemes which were announced in the July 2024 budget at a combined outlay of Rs 2 lakh crore.

In fact, nothing has been heard on them since then, and the PM internship scheme, which was supposed to be launched in December, has been delayed. Additionally, any hopes of an expansion of the production-linked incentive (PLI) scheme to include new sectors, were dashed.

Analysts were expecting PLI for more emerging technologies, with greater outlay.

She admitted that uplifting household sentiments and enhancing the spending power of India’s middle class would be a priority this time.

“The budget proposals will re-energise the economy by lifting the sentiments of the middle class and nudging the private sector to advance its investment plans as demand improves across sectors,” said Harsha Vardhan Agarwal, president of Federation of Indian Chambers of Commerce & Industry (FICCI).

According to the new tax slabs, those earning between Rs 4 lakh and Rs 12 lakh per annum will attract tax of 5 per cent and 10 per cent in two brackets, for which they can claim rebates for the full amount.

Additionally, new brackets for those in the Rs 12 lakh-Rs 24 lakh per annum category will fall under three brackets, attracting tax of 15 per cent, 20 per cent and 25 per cent. Earlier, anything above Rs 15 lakh per annum attracted a 30 per cent tax.

“To taxpayers up to Rs 12 lakh of normal income (other than special rate income such as capital gains) tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them,” the FM said.

Sitharaman also rationalised Tax Deduction at Source (TDS) by reducing the number of rates and thresholds and doubled the limit for tax deduction on interest for senior citizens to Rs 1 lakh from Rs 50,000. She increased the TDS limit on rent from Rs 2.4 lakh to Rs 6 lakh, and the threshold to collect tax at source (TCS) on remittances from Rs 7 lakh to Rs 10 lakh.

She added that the government will forego revenue of Rs 1 lakh crore as a result of the direct tax measures. Even with this revenue loss, the budget maintained a path of fiscal consolidation. The budget assumes a nominal GDP growth of 10.1per cent in FY2025-26, and a fiscal deficit target of 4.4 per cent of that GDP.

For the first time, total expenditure is budgeted to cross Rs 50 lakh crore, out of which Rs 11.2 lakh crore will be the Centre’s capital expenditure. Net tax revenue is estimated to be Rs 27.3 lakh crore.

The budget also announced a slew of measures for infrastructure, agriculture, nuclear energy mission and startups. For infrastructure, the government is set to revive public private partnerships, with each ministry to prepare a three-year pipeline for such projects. States will be given Rs 1.5 lakh crore in long-term interest-free loans for their capital expenditure needs. The Centre will also set up an Urban Challenge Fund of Rs 1 lakh crore for creative development of cities to serve as growth hubs.

Calling agriculture the ‘first engine of growth’, Sitharaman said the Prime Minister Dhan-Dhaanya Krishi Yojana will be launched to help 100 districts with low productivity, moderate crop intensity and below-average credit parameters. Targeting 1.7 crore farmers, the scheme will look to enhance agricultural productivity, adopt crop diversification, improve irrigation, augment post-harvest storage and facilitate credit.

Competitive federalism

Sitharaman said there will also be an Investment Friendliness Index of States, to be launched this year to further the spirit of competitive cooperative federalism.

‘Investment-friendly’

“The budget has announced measures to further ease of doing business, including setting up a higher-level committee for reforms in the non-financial sector in a year, investment-friendly index of states and decriminalising another 100 business laws. These are steps in the right direction,” said Sanjiv Puri, president of CII and chairman and managing director of ITC Ltd.

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Union Budget 2025 | Nirmala Sitharaman, as Finance Minister, presented her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', the Modi govt gave income tax relief for those making up to Rs 12 lakh per year in salaried income. 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.