Budget 2025 Highlights: Key Announcements & Tax Reforms

• Mrs Nirmala Sitharaman, the finance minister of India, presented the Union Budget 2025 on 1st February underlining major reforms in different sectors.
• One of the most important changes was an increase in the tax-free income limit from ₹7 lakh to ₹12 lakh in the new tax regime.
• The TDS (tax deducted at source) and TCS (tax collected at source) threshold limits were also revised for remittances under the liberalised remittance scheme, interest earned by senior citizens and rental income.
• Other proposed reforms included the development of agriculture, nuclear power, infrastructure, and people-focused growth.

Finance Minister (FM) Nirmala Sitharaman presented the Union Budget 2025 in Parliament on 1st February 2025. This marks her eighth consecutive budget and the first of the Modi government's third term. A key highlight is the increase in the tax-free income limit to ₹12 lakh under the new tax regime, offering major relief to taxpayers.The Union Budget 2025 focuses on transformative reforms in taxation, finance, power, urban development, mining, and regulations. The government aims to drive economic growth, strengthen infrastructure, and promote sustainable progress. Highlighting India's rapid growth, the finance minister emphasised the budget’s role in fostering inclusive development and empowering the middle class.

Here are some of the major announcements of the Union Budget 2025:

Capital Expenditure

Revised capital expenditure for FY25 is set at ₹10.18 lakh crore.

Changes in Direct Taxes

The updated Income Tax Bill will be introduced a week after the budget announcement. Under the new regime, income up to ₹12 lakh will be tax-free. This adjustment will enable taxpayers earning ₹12 lakh to reduce their tax liability by ₹80,000 through rebates. For salaried individuals, with the addition of ₹75,000 standard deduction, the threshold for tax-free income rises to ₹12.75 lakh. The time limit for filing tax returns will now extend to four years instead of two.The tax slab rates under the new regime have also changed. They are as follows:

The FM emphasised a decade of tax reforms aimed at making compliance easier. Measures such as faceless assessments, a taxpayer charter, and faster return processing have been introduced, with 99% of returns now processed through self-assessment. The tax department continues to follow a "trust first, scrutinise later" approach.Other major tax modifications are:

• Senior citizens can now earn up to ₹1 lakh in interest before being taxed.
• The TDS exemption on rent has been raised from ₹2.4 lakh to ₹6 lakh.
• The tax collected at source (TCS) on remittances for education is removed if funded by a loan from a recognised financial institution.
• Higher TDS applies only in cases where PAN is unavailable.
• The TCS threshold for remittances under the Reserve Bank of India's Liberalised Remittance Scheme (LRS) has been increased to ₹10 lakh. It was earlier capped at ₹7 lakh.

The government aims to simplify customs tariffs to correct duty imbalances and boost domestic manufacturing, exports, and value addition. As part of an ongoing review initiated in the interim budget presented in July 2024, seven additional tariff rates will be removed, leaving only eight, including a zero rate. While overall duty levels will remain largely unchanged, minor reductions will apply to select items. The government also intends to impose only one cess or surcharge and will remove the social welfare surcharge on 82 tariff categories.Key changes include:

• Full exemption of basic customs duty (BCD) on cobalt powder, lithium-ion battery waste, scrap, and 12 other critical minerals.
• Addition of 37 medicines and 13 patient assistance programs to the exemption list.
• Six essential medicines will now have a concessional 5% customs duty.
• Full BCD exemption on wet blue leather and removal of the 20% duty on crust leather.
• Reduction of BCD on frozen fish paste from 30% to 5% and on fish hydrolysates from 15% to 5%.
• Increase in BCD on interactive flat panel displays from 10% to 20%, while lowering BCD on open cell and other LCD/LED components to 5%.

The government has increased the foreign direct investment (FDI) cap in insurance from 74% to 100% for firms that invest all premiums within India. A modernised central KYC (know your customer) registry will also be launched, adapting regulations to align with technological advancements and global standards.To enhance the ease of doing business, the government will streamline company merger approvals and broaden relevant regulations. A new investment friendliness index will be introduced in 2025 to promote cooperative federalism. Additionally, a mechanism under the Financial Stability and Development Council (FSDC) will be set up to assess the impact of financial regulations and foster sector growth.

The finance minister introduced a ₹1 lakh crore Urban Challenge Fund aimed at transforming cities into economic growth centres. This fund will support innovative redevelopment projects and enhance water and sanitation infrastructure, as outlined in the July Budget. The fund will cover up to 25% of eligible projects, with at least 50% of the funding sourced from bonds, bank loans, or public-private partnerships (PPPs).Each ministry will present a three-year plan, focusing on three key PPP projects. For FY 2025-26, ₹10,000 crore is allocated to kick start this effort.The government will also allocate ₹1.5 lakh crore in interest-free loans for capital expenditures and offer benefits to drive reforms.In affordable housing, 40,000 more units will be completed by FY26, and a new ₹15,000 crore SWAMIH (special window for affordable and mid-income housing) Fund 2 will be established to further support housing initiatives.

The finance minister unveiled a Nuclear Energy Mission to fast-track India's transition to clean energy, targeting 100 GW of nuclear power by 2047. To attract private investment, changes will be made to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act. Additionally, a ₹20,000 crore R&D (research & development) fund will be established for small modular reactors (SMRs), to have five domestically developed SMRs in operation by 2033.

Emphasising that MSMEs (micro small and medium enterprises) play a crucial role in India’s growth, the FM mentioned that they contribute to 45% of the country's exports. To support their expansion, she introduced specialised credit cards for MSMEs, fund-of-funds for start-ups, and expanded fund-of-funds to improve capital access. Additionally, the government will increase investment by 2.5 times and turnover limits for MSMEs by 2 times, to enhance their expansion and productivity.

In Budget 2025, agriculture was identified as a key priority. The FM introduced the Dhan Dhaanya Krishi Yojana, aimed at improving productivity in 100 districts with low productivity average crop intensity and limited credit access. This initiative will focus on crop diversification, better storage facilities, improved irrigation, and providing both short and long-term credit to farmers, benefiting around 1.7 crore farmers.Additionally, a 6-year mission will be launched to make India self-reliant in pulses, particularly tur and masoor. A Makhana Board will be set up in Bihar, and the National Mission for Edible Oil & Seeds will focus on boosting local production and decreasing reliance on imports.Kisan Credit Cards (KCC) will continue to support 7.7 crore farmers, fishermen, and dairy workers. To offer greater financial support, there will be an increase in loan limit for KCC-supported borrowing from ₹3,000 to ₹5,000.

The finance minister unveiled new measures to boost India's leather and footwear industry, focusing on improving productivity, quality, and global competitiveness. A fresh scheme will support the production of both leather and non-leather footwear, which is expected to create 22 lakh jobs, generate ₹400 crore, and increase exports to ₹1.1 lakh crore. Moreover, a new initiative for the toy sector aims to position India as a global toy manufacturing hub, fostering clusters, skills, and an eco-friendly production system for innovative and premium toys.

The finance minister highlighted people as a key driver of growth, with a focus on empowering individuals, boosting the economy, and fostering innovation. Under this approach, the government is prioritising the Sashakt Anganwadi and Poshan 2.0 initiatives.These programs will offer nutritional support to over 8 crore children, pregnant women, lactating mothers, and 20 lakh adolescent girls, particularly in areas like the Northeast. The program's impact will be enhanced with increased funding.To strengthen education, the government plans to expand infrastructure at five IITs set up after 2014, adding capacity for 6,500 more students. Additionally, five National Centres of Excellence for Skill Development will be launched, while gig workers will be registered on the e-Shram portal. This aims to support 1 crore workers with identity cards and access to resources.

The Finance minister introduced substantial reforms in the power sector to strengthen electricity distribution and transmission. States will be incentivised to carry out distribution reforms and expand intrastate transmission capacity. This is aimed at improving the financial and operational performance of power companies. To support these efforts, an additional borrowing limit of 0.5% of GSDP (gross state domestic product) will be granted, contingent on the progress of these reforms.

The UDAN ( Ude Desh ka Aam Naagrik ) initiative has already connected 1.5 crore middle-class citizens to 88 airports across 619 routes. A revised version of this scheme will be introduced, extending to 120 new destinations and targeting an additional 4 crore passengers. Moreover, new greenfield airports will be developed in Bihar to improve connectivity.The financial summary of the economy, as presented in the budget, is as follows:

• For FY25, the updated fiscal deficit is projected at 4.8%. The fiscal deficit target for FY26 is set at 4.4%.
• In the fiscal year 2024-25, total receipts, excluding borrowings, are estimated to be ₹31.47 lakh crore, with net tax receipts amounting to ₹25.57 lakh crore.
• Expenditure for FY25 is revised to ₹47.16 lakh crore, which includes ₹10.1 lakh crore allocated for capital investments, aiming to drive infrastructure growth and economic development.

The Union Budget 2025 aligns with India's vision of becoming a 'Viksit Bharat.' With tax-friendly reforms and strategic investments in key sectors like agriculture, infrastructure, and power, the budget paves the way for inclusive growth, economic expansion, and enhanced ease of doing business for all.