Introduction
The Union Budget 2025-26, presented by the Honourable Finance Minister Smt. Nirmala Sitharaman marks a significant moment in India’s economic sojurn. With the theme of “Sabka Vikas” (inclusive growth), this budget is crafted to address the aspirations of a diverse population, spanning from middle-class households to large corporations. Quoting the renowned Telugu poet Gurajada Appa Rao, “A country is not just its soil; a country is its people,” the Finance Minister highlighted the government’s commitment to people-centric policies.
This budget reflects India’s ambition to accelerate towards Viksit Bharat (a developed India) by focusing on fiscal consolidation, economic resilience, and sustainable development. It highlights four key drivers of growth—Agriculture, Micro, Small and Medium Enterprises (MSMEs), Investments, and Exports—all aimed at fostering an environment that nurtures economic expansion and social welfare.
Key Tax Reforms And Implications For Individuals And Businesses
The Union Budget 2025-26 introduces significant tax reforms aimed at simplifying the tax structure, promoting voluntary compliance, and easing the financial burden on both individuals and businesses. With a clear focus on enhancing disposable income and fostering a business-friendly environment, the new tax proposals are designed to stimulate consumption, savings, and investment across the economy.
1. Income Tax Reforms
One of the most notable announcements in this budget is the revised income tax regime, which brings substantial relief to the middle class. The government has introduced a progressive tax structure where individuals with an annual income of up to ₹12 lakh will not be liable to pay any income tax, thanks to the new slabs and a standard deduction of ₹75,000. This effectively means that salaried individuals earning up to ₹12 lakh annually will pay zero income tax, putting more money directly into the hands of millions of Indians.
Revised Income Tax Slabs (New Tax Regime):
Annual Income (₹) | Rate of Tax |
0 – 4,00,000 | NIL |
4,00,001 – 8,00,000 | 5% |
8,00,001 – 12,00,000 | 10% |
12,00,001 – 16,00,000 | 15% |
16,00,001 – 20,00,000 | 20% |
20,00,001 – 24,00,000 | 25% |
Above 24,00,000 | 30% |
The new tax regime simplifies compliance, making it easier for taxpayers to file returns without the complexities of multiple exemptions and deductions.
2. TDS and TCS Rationalisation
The budget proposes several changes to the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions to streamline tax collection and reduce compliance burdens:
- TDS on Rent: The threshold for TDS on rental income has been increased from ₹2.4 lakh to ₹6 lakh per annum. This is a significant relief for individuals and small businesses, as it reduces the administrative hassle of managing TDS for smaller rental incomes.
- Senior Citizens’ Interest Income: The limit for tax deduction on interest income for senior citizens has been doubled from ₹50,000 to ₹1 lakh, providing additional tax relief to retirees and encouraging savings in fixed-income instruments.
- Decriminalisation of TDS/TCS Delays: In a progressive move, the budget has decriminalised delays in the payment of both TDS and TCS. This aligns with the government’s broader agenda of reducing the fear of prosecution for minor compliance delays, fostering a more taxpayer-friendly environment.
3. Simplified Tax Compliance and Voluntary Disclosures
To promote voluntary compliance, the government has extended the time limit for filing updated income tax returns from the current two years to four years. This provides taxpayers with a longer window to correct errors or omissions in their original filings without facing severe penalties. Over 90 lakh taxpayers have already benefited from this provision in the past, reflecting its success in encouraging honest disclosures.
Additionally, the Vivad Se Vishwas Scheme, aimed at resolving tax disputes, has seen strong participation with nearly 33,000 taxpayers availing of its benefits. The continuation and expansion of such schemes highlight the government’s focus on reducing litigation and increasing trust between taxpayers and the administration.
4. Corporate Tax and Business-Friendly Initiatives
For businesses, especially start-ups and MSMEs, the budget offers a range of incentives designed to promote growth and investment:
- Presumptive Taxation for Non-Residents: A new presumptive taxation regime has been introduced for non-resident entities providing services to Indian companies, particularly in the electronics manufacturing sector. This move simplifies tax calculations and encourages foreign businesses to invest in India.
- Extension of Start-Up Benefits: The eligibility period for start-ups to avail of tax exemptions has been extended by five years, providing much-needed support to India’s vibrant start-up ecosystem. This extension is expected to encourage entrepreneurship and innovation across sectors.
- Incentives for Sovereign Wealth and Pension Funds: To boost infrastructure investment, the budget has extended the deadline for investments in sovereign wealth funds and pension funds by five more years, until 31st March 2030. This move is likely to attract long-term capital into critical infrastructure projects.
5. Relief on Customs Duties and Import Tariffs
The budget also proposes several changes to customs duties to promote domestic manufacturing and reduce dependency on imports:
- Exemption on Lifesaving Drugs: Basic Customs Duty (BCD) has been exempted from 36 lifesaving drugs used to treat cancer, rare diseases, and chronic conditions. This will make essential medicines more affordable for patients.
- Boost to EV and Battery Manufacturing: To support the electric vehicle ecosystem, BCD exemptions have been extended to capital goods used for EV and mobile battery manufacturing. This is expected to reduce production costs and promote the adoption of clean energy technologies.
- Duty Rationalisation for Exports: BCD has been reduced from 30% to 5% on frozen fish paste and from 15% to 5% on fish hydrolysate, supporting the seafood export industry and enhancing competitiveness in global markets.
Sector-Specific Highlights: Agriculture, MSMEs, Investment, And Exports
The Union Budget 2025-26 strategically identifies four key engines of growth—Agriculture, Micro, Small and Medium Enterprises (MSMEs), Investments, and Exports—as the pillars driving India’s journey towards Viksit Bharat (a developed India). This section provides a comprehensive analysis of the sector-specific initiatives that reflect the government’s commitment to inclusive development, economic resilience, and global competitiveness.
1. Agriculture: Strengthening the Backbone of the Economy
Agriculture remains the cornerstone of India’s economy, employing nearly half of the workforce. Recognising its critical role, the budget introduces several transformative schemes aimed at increasing productivity, ensuring food security, and improving farmers’ incomes.
Key Initiatives:
- Prime Minister Dhan-Dhaanya Krishi Yojana:
This flagship programme will cover 100 districts identified as having low agricultural productivity. It focuses on crop diversification, post-harvest storage, irrigation improvement, and ensuring the availability of both short- and long-term credit facilities. The partnership with state governments will facilitate region-specific strategies to enhance agricultural resilience. - Mission for Aatmanirbharta in Pulses:
A six-year mission focusing on key pulses—Tur, Urad, and Masoor—has been announced to achieve self-sufficiency in pulse production. Central agencies like NAFED and NCCF will procure these pulses from farmers for the next four years, ensuring stable market prices and income security. - Kisan Credit Card (KCC) Expansion:
The loan limit under the KCC scheme has been increased from ₹3 lakh to ₹5 lakh, with a modified interest subvention scheme. This will enhance credit accessibility for small and marginal farmers, supporting agricultural investments and modernisation. - Comprehensive Programme for Fruits and Vegetables:
To address post-harvest losses and improve value chains, the government has launched initiatives focusing on the fruit and vegetable sectors, alongside a National Mission on High-Yielding Seeds and a Five-Year Mission for Cotton Productivity.
2. MSMEs
MSMEs contribute significantly to India’s GDP, employment generation, and exports. Recognising their potential, the budget outlines a robust framework to enhance credit access, promote technological upgrades, and support entrepreneurial ventures.
Key Initiatives:
- Enhanced Credit Guarantee Cover:
The credit guarantee limit for MSMEs has been doubled from ₹5 crore to ₹10 crore, making it easier for small businesses to secure loans at favourable terms. This move aims to boost business expansion, particularly in the post-pandemic recovery phase. - New Scheme for First-Time Entrepreneurs:
A dedicated scheme targeting 5 lakh women, Scheduled Castes, and Scheduled Tribes entrepreneurs will provide term loans of up to ₹2 crore over the next five years. This initiative is designed to promote inclusivity in entrepreneurship and support start-ups from underrepresented communities. - National Manufacturing Mission:
Covering small, medium, and large industries, this mission aims to strengthen the ‘Make in India’ initiative. It focuses on enhancing manufacturing capabilities, encouraging technological innovation, and integrating Indian businesses into global supply chains. - Toy Manufacturing Promotion:
In a bid to reduce dependency on imports, the government will support domestic toy manufacturers through subsidies and skill development programmes, reinforcing the ‘Made in India’ brand in global markets.
3. Investment
Investment is the cornerstone of sustainable economic growth. The budget outlines a multi-pronged strategy focusing on infrastructure development, human capital enhancement, and technological innovation to create a robust investment ecosystem.
Key Initiatives:
- Atal Tinkering Labs:
The budget proposes setting up 50,000 Atal Tinkering Labs in government schools over the next five years. These labs will foster a culture of innovation and scientific curiosity among students, preparing the next generation for emerging industries. - Centre of Excellence in Artificial Intelligence (AI):
With an outlay of ₹500 crore, the government will establish an AI centre focused on education. This initiative aims to integrate advanced AI technologies into learning environments, enhancing digital literacy and research capabilities. - Urban Challenge Fund:
A significant allocation of ₹1 lakh crore has been made for the ‘Cities as Growth Hubs’ programme. This fund will support urban redevelopment, improve water and sanitation infrastructure, and promote sustainable urbanisation. - Private Sector-Led R&D Initiatives:
The budget allocates ₹20,000 crore for private sector-driven research, development, and innovation. This move aims to foster collaboration between academia, industry, and government, driving breakthroughs in technology, healthcare, and clean energy. - BharatNet for Digital Connectivity:
To bridge the digital divide, broadband connectivity will be provided to all government secondary schools and primary health centres in rural areas, ensuring equitable access to digital resources.
4. Exports
Exports play a vital role in boosting foreign exchange reserves, creating jobs, and strengthening India’s position in the global economy. The budget outlines several measures to promote exports and integrate Indian businesses with international markets.
Key Initiatives:
- Export Promotion Mission:
A unified Export Promotion Mission will be launched, jointly driven by the Ministries of Commerce, MSME, and Finance. This mission will focus on helping MSMEs tap into global markets through financial assistance, capacity building, and marketing support. - BharatTradeNet (BTN):
A new digital public infrastructure platform, BharatTradeNet, will be established to streamline international trade documentation and provide financing solutions. This will reduce red tape, enhance transparency, and improve the ease of doing business for exporters. - Infrastructure Upgradation for Exports:
The budget proposes upgrading air cargo infrastructure, including facilities for high-value perishable horticulture produce. This will improve supply chain efficiency and reduce transit times for perishable goods. - Support for Domestic Electronics Manufacturing:
To capitalise on Industry 4.0 opportunities, the government will support the domestic electronics industry through incentives, infrastructure development, and R&D support.
Reforms For Growth
Reforms are positioned as the fuel that powers these four growth engines. The budget continues the government’s focus on ease of doing business, regulatory simplification, and fiscal prudence.
- Jan Vishwas Bill 2.0:
The bill aims to decriminalise over 100 provisions in various laws, reducing legal hurdles for businesses and encouraging entrepreneurship. - Foreign Direct Investment (FDI) Liberalisation:
The FDI limit in the insurance sector has been raised from 74% to 100%, aimed at attracting foreign capital and promoting growth in the financial services sector. - Light-Touch Regulatory Framework:
A high-level committee will be established to review non-financial sector regulations, with recommendations expected within a year. This framework aims to balance regulatory oversight with the need for business agility. - Investment Friendliness Index:
To encourage healthy competition among states, an Investment Friendliness Index will be launched in 2025. This index will evaluate states based on ease of doing business, infrastructure, and investment policies.
Fiscal Consolidation And Budgetary Estimates
The budget reaffirms the government’s commitment to fiscal discipline, with a clear roadmap to reduce the fiscal deficit and maintain macroeconomic stability.
- Fiscal Deficit Targets:
The fiscal deficit for FY 2024-25 is estimated at 4.8% of GDP, with a target to bring it down to 4.4% in FY 2025-26. This reflects a balanced approach towards growth and fiscal prudence. - Revised Estimates for 2024-25:
- Total Receipts (Excluding Borrowings): ₹31.47 lakh crore
- Net Tax Receipts: ₹25.57 lakh crore
- Total Expenditure: ₹47.16 lakh crore
- Capital Expenditure: ₹10.18 lakh crore
- Budget Estimates for 2025-26:
- Total Receipts (Excluding Borrowings): ₹34.96 lakh crore
- Net Tax Receipts: ₹28.37 lakh crore
- Total Expenditure: ₹50.65 lakh crore
Key Takeaways From The 2025 Union Budget
- Middle-Class Relief: Significant tax cuts, zero tax liability for incomes up to ₹12 lakh, and increased deductions for senior citizens.
- Boost to MSMEs: Enhanced credit guarantees, support for first-time entrepreneurs, and initiatives to promote domestic manufacturing.
- Agricultural Reforms: Increased Kisan Credit limits, focus on pulses self-sufficiency, and comprehensive rural development programmes.
- Investment in Innovation: Allocations for AI, R&D, urban development, and digital connectivity to drive India’s technological growth.
- Ease of Doing Business: Decriminalisation of minor tax offences, simplified compliance, and promotion of voluntary disclosures.
- Exports & Global Integration: Support for MSME exports, infrastructure upgrades for air cargo, and reduction of customs duties on key commodities.
Conclusion
The Union Budget 2025-26 at its core, reflects a balanced approach—providing substantial tax relief to the middle class, fostering entrepreneurship through MSME support, strengthening the agricultural backbone, and fuelling investments in infrastructure, technology, and innovation. The recognition of **four growth engines—Agriculture, MSMEs, Investments, and Exports—**demonstrates the government’s strategic vision to diversify economic drivers and ensure resilience against global uncertainties.
