PTI
New Delhi
Finance Minister Nirmala Sitharaman on Saturday announced significant income tax cuts for the middle class and unveiled a blueprint for next generation reforms for Viksit Bharat as she treaded a fine line between fiscal prudence and providing a thrust to growth.
Individuals earning up to Rs 12 lakh in a year will not have to pay any taxes after she raised the exemption threshold from Rs 7 lakh. An additional Rs 75,000 standard deduction is available for the salaried class.
Presenting her eighth straight budget, she also altered tax slabs for people earning above this threshold to help save up to Rs 1.1 lakh in taxes for those with income up to Rs 25 lakh in a year. The raising of the rebate leads to 1 crore people not having to pay any tax, she said.
The overall tax slab regig will benefit 6.3 crore people, or more than 80% of taxpayers.
“The new structure will substantially reduce taxes on the middle class and leave more money in their hands, boosting household consumption, savings and investment,” Sitharaman said presenting what was dubbed as ‘reformist’ budget for the next fiscal in Lok Sabha.
The Budget for April 2025 to March 2026 fiscal (FY26) proposed to raise foreign investment limit in insurance sector to 100% from the current 74% and continued spending spree on infrastructure while raising allocations for social sectors as well as providing for measures for poor, youth, farmers and women. She did all this while managing to stick to the fiscal consolidation roadmap, projecting a fiscal deficit of 4.4% of the GDP in FY26 as against an estimated 4.8% in the current year ending March 31.
Commenting on the announcements, Prime Minister Narendra Modi said it is a “people’s budget” that fulfils the dreams of every Indian and said that it is a “force-multiplier” that will boost consumption, investment and growth. “The Budget lays a strong foundation to increase savings and make citizens partners in development,” he said.
Sitharaman’s budget has proposals aimed at boosting both, consumption and investment, which, in turn, are expected to give a fillip to domestic economic activity and protecting the growth outlook amidst global uncertainties.
While maintaining the thrust on infrastructure development, it also continued to provide increasing support to the Micro, Small and Medium Enterprises (MSMEs) and the agricultural sector.
Also announced were duty cuts on intermediaries and certain life saving drugs. To balance the revenue lost, she budgeted a modest increase in capital spending at Rs 11.21 lakh crore in the next financial year compared to a lowered Rs 10.18 lakh crore in current fiscal. Besides, an increase in dividend expected from the Reserve Bank and other government-owned financial institutions will also help to contain the losses.
The budget comes against the backdrop of the Indian economy growing at its weakest pace since pandemic and rising geopolitical risks, particularly with the new US President Donald Trump threatening to impose widespread tariffs including on India.
The 6.4% GDP growth estimated for the current fiscal and 6.3-6.8% in the next are well below the 8% growth needed to meet the ambitious goal of making India a developed nation by 2047.
“Our endeavour will be to keep the fiscal deficit each year such that the central government debt remains on a declining path as a percentage of the GDP,” she said, projecting debt at 50% of GDP by March 2031.
Other measures include a national mission to push high-yielding crops with a special focus on pulses and cotton production, hike in the limit of subsidised credit to farmers to Rs 5 lakh from Rs 3 lakh, missions to push manufacturing and exports, a new policy for labour-intensive sectors like leather and footwear and a scheme to make India a global hub for toy manufacturing.
The Finance Minister also announced a social security cover for nearly 1 crore gig workers and a Rs 10,000 crore fund of funds for start-ups.
Another major announcement was setting a target of at least 100 gigawatt of electricity from nuclear energy by 2047 and amendment to nuclear liability regulations to allow private sector investment.
Sitharaman also announced reduction in duties on a raft of goods including open cells, while fully exempting critical minerals such as cobalt, scraps of lithium-ion battery, lead, zinc and a few others from import duty.
She proposed a hike in the threshold of tax collected at source on remittances under the RBI’s Liberalised Remittance Scheme from Rs 7 lakh to Rs 10 lakh, benefitting the travel and foreign exchange sectors. Students and individuals seeking medical treatment will also benefit from this.
Rationalising TDS provisions, the Finance Minister increased the thresholds for non-deduction across various TDS provisions broadly ranging from Rs 5,000 to Rs 50,000. The threshold for TDS on rent has been increased from Rs 2.40 lakh to Rs 6 lakh.
That apart, omissions of higher TDS/TCS rates are now applicable for non-filers.
Commenting on the Budget, Christian de Guzman, senior vice president, Moody’s Ratings, said: “As the government unveiled its budget for 2025-26 amid a somewhat dampened macroeconomic backdrop as compared to recent years, it has had to slow the pace of fiscal consolidation to provide firmer support to growth.”
“In particular, announced tax relief measures have constrained the growth of revenue receipts, which will rise at its slowest pace since 2022-23; as such, falling expenditure as a share of GDP has borne the brunt of the projected narrowing of the fiscal deficit even as the emphasis on capital expenditure has been sustained,” he said.
