‘After around six decades of relying on the same tax policies, the government is set to introduce a new income tax bill in the parliament this week.’
Finance Minister Nirmala Sitaraman presented the much-anticipated Union Budget 2025-26, marking it as her eighth consecutive budget in the parliament. This year’s budget revolved around inclusivity, with the Viksit Bharat vision highlighting all the key areas such as investment-driven development, higher capital expenditure, revised income tax slabs, and incentives for businesses and startups.
A major takeaway from the Union budget 2025-26 was its feature outlining the fiscal measures, including 10 major sectors, centred around GYAN-Gareeb (the poor), Youth, Annadata (the farmers), & Naari (the women), which existed simultaneously with viksit bharat, reinforcing the broader goals to accelerate growth, secure inclusive development, enhance the spending power of India’s rising middle class, and invigorate private sector investments, uplifting household sentiments.
With a focus on the middle class, significant changes were made to the tax slabs, which eliminated income taxes for those earning up to Rs 12 lakh annually, with the exception of capital gains, making it one of the significant announcements that released up to one crore people from paying tax.
INFRASTRUCTURE: A TRANSFORMATIVE GAME CHANGER FOR INDIA’S GLOBAL ASPIRATIONS
The Union Budget 2025-26 allocates ₹11.21 lakh crore for infrastructure (3.1% of GDP), driving growth and competitiveness. Key initiatives include the Centre of Excellence (CoE) in AI for Education with ₹500 crore, a ₹1 lakh crore Urban Challenge Fund for sustainable cities, and a focus on Net Zero green energy.
Healthcare is strengthened with 10,000 additional medical seats and the extension of PM Jan Aarogya Yojana to provide comprehensive health coverage for 1 crore gig workers, addressing the growing healthcare needs of India’s expanding gig economy. The budget also offers ₹1.5 lakh crore in interest-free loans for PPP projects and introduces InvITs and REITs to attract institutional investment.
The Maritime Development Fund has a ₹25,000 crore corpus, with a 49% government contribution and 51% private sector funding, advancing maritime sector development. Successful execution hinges on overcoming bureaucratic challenges and fiscal discipline, setting the foundation for India’s leadership in global infrastructure.
AUGMENTATION OF MSMEs
With the motto "Make for India, Make for the World," the 2025–2026 budget places a high priority on the expansion of MSMEs. To this end, the government plans to grant 10 lakh credit cards with a ₹5 lakh limit to businesses that have registered on the Udyam Portal. Additionally, 5 lakh new entrepreneurs will have access to loans up to ₹2 crore over the next five years.
The budget also targets labour-intensive sectors. The footwear industry is expected to generate 22 lakh jobs, with a turnover of ₹4 lakh crore and exports of over ₹1.1 lakh crore. The toy sector will focus on sustainable, “Made in India” products. A National Institute of Food Technology will be set up in Bihar.
Credit guarantee cover for MSEs is increased from ₹5 crore to ₹10 crore and for startups from ₹10 crore to ₹20 crore. Additionally, term loans up to ₹20 crore will be available for exporter MSMEs.
SKILLING INDIA'S WORKFORCE: A FUTURE-READY BUDGET
The 2025-26 budget focuses on upskilling India’s workforce, with the launch of five National Centres of Excellence in collaboration with global partners, offering industry-relevant education and globally recognised certifications. Key investments in STEM education, including 6,500 additional IIT seats and a ₹500 crore AI Centre for Education, highlight the drive towards advanced technology in learning. Digital access, via enhanced broadband connectivity in schools and health centres, aims to bridge the urban-rural divide.
The budget also introduces identity cards with health benefits for gig workers, covering one crore people, ensuring job security in India’s evolving digital economy. However, critics argue that while skilling is prioritised, the need for direct employment generation remains unmet.
CUSTOM DUTY REFORMS: BOOSTING DOMESTIC MANUFACTURING & GLOBAL COMPETITIVENESS
The Union Budget 2025-26 optimises customs duties to boost domestic manufacturing and export competitiveness. Duty cuts on raw materials for electronics, EVs, renewables, and semiconductors support local production, while higher tariffs on finished imports reinforce Make in India. Duty exemptions for semiconductor and Li-ion battery equipment, along with zero duties on solar components and hydrogen electrolysers, benefit the green energy sector. MSMEs and exports gain from duty relief on textiles, leather, and gems, while defence indigenisation sees higher import tariffs.
TCS and TDS rates have been rationalised, with higher thresholds for deductions to reduce taxpayer compliance. The tax deduction limit for senior citizens has been doubled from ₹50,000 to ₹1,00,000, and the TDS limit for rents is raised from ₹2.40 lakh to ₹6 lakh. The TCS threshold on remittances under the RBI's Liberalised Remittance Scheme increases from ₹7 lakh to ₹10 lakh, easing tax burdens.
TAX REFORMS
The 2025-26 budget introduces bold reforms in direct taxes, including a proposal for a new income tax system. It eliminates seven tariff brackets and offers a tax-free threshold of ₹12.75 lakh. Duty-free inputs benefit the handicraft and leather sectors.
Custom duties on 36 life-saving drugs are removed, easing costs for affected families. For senior citizens, the tax deduction limit is doubled to ₹1 lakh. Tax certainty is introduced for electronics manufacturing and the tonnage tax for inland vessels.
A new rule allows taxpayers to claim tax benefits on two self-occupied properties, reducing tax burdens for those with multiple assets, simplifying the tax structure, and improving the middle class's ease of living.
MAJOR SECTOR EXPENDITURE
The 2025-26 budget takes a major step for the insurance sector with the introduction of 100% FDI. Access to the Ayushman Bharat Health Insurance Program will be expanded to low-income families, alongside new regulations to expedite claim settlements.
₹11.11 trillion has been allocated for infrastructure development, covering highways, waterways, railways, energy, & digital infrastructure, with a special focus on states like Bihar & Andhra Pradesh.
The budget also announces the establishment of Day Care Cancer Centres in all District Hospitals. National security receives a boost with ₹5.6 trillion allocated to the defence sector, funding projects like the procurement of more Rafale & Tejas fighter jets and the expansion of India’s aircraft carrier fleet.
REVISED INCOME TAX SLABS & FINANCE BILL IN PURVIEW OF THE BUDGET
The new tax regime has been drafted in the purview of the Principle of 3D, i.e., Democracy, Demography & Demand, that serves as key support pillars for the journey towards Vikasit Bharat.
In the Union Budget 2025-26, Finance Minister Nirmala Sitharaman revised the personal income tax structure to enhance middle-class spending power and drive economic growth. The new regime raises the tax-free threshold and adjusts tax rates, reflecting the government's focus on tax reform and middle-class recognition.
Revised Income Tax Slabs:
Income up to ₹4 lakh: Nil
Income from ₹4 lakh to ₹8 lakh: 5%
Income from ₹8 lakh to ₹12 lakh: 10%
Income from ₹12 lakh to ₹16 lakh: 15%
Income from ₹16 lakh to ₹20 lakh: 20%
Income from ₹20 lakh to ₹24 lakh: 25%
Income above ₹24 lakh: 30%
Notably, under the new regime, individuals earning up to ₹12 lakh annually are exempt from income tax. For salaried individuals, this exemption extends up to ₹12.75 lakh, accounting for the standard deduction.
The Finance Bill 2025, alongside the Union Budget 2025-26, introduces reforms to drive economic resilience, investment growth, and tax rationalisation. Key measures include raising the income tax exemption to ₹12 lakh, boosting disposable income and demand. Corporate tax reliefs support Make in India and Atmanirbhar Bharat, promoting domestic manufacturing and exports. A high-yield crop program for 17 million farmers and subsidised credit aims to enhance agricultural productivity. With an expanded capex outlay, infrastructure development is set to catalyse economic multiplier effects. The bill balances fiscal consolidation with growth acceleration, positioning India as a global economic powerhouse.
IMPACT ON PRICES
The Union Budget 2025-26 will likely have short-term and long-term impacts on prices in India. In the short term, higher capital expenditure on infrastructure projects will escalate the demand for raw materials such as cement and steel, which may drive their prices higher. But in the long term, better infrastructure may lower the cost of logistics and transportation, which may lower the prices of goods and services. Spending on agriculture and rural development will likely boost food production, which may ease food inflation, although higher support prices to farmers may drive the prices of some crops higher. However, over the medium to long term, enhanced infrastructure is expected to streamline supply chain efficiencies and reduce logistical bottlenecks, potentially mitigating cost inflation for goods and services. Additionally, raising taxes or duties on imported goods may drive the prices of items such as electronics or luxury goods higher.
The shift to renewable energy in India could reduce reliance on fossil fuels, potentially lowering energy prices in the long term. Higher fiscal expenditure may increase demand, putting pressure on prices in sectors like housing, transport, and food. However, subsidies on essentials could keep prices stable in the short term. Ultimately, improvements in infrastructure, energy, and agriculture may help curb inflation over time.
FISCAL STRATEGY: INTEGRATING GROWTH WITH PRUDENCE
The ₹50.65 lakh crore expenditure plan and ₹34.96 lakh crore receipts target a 4.4% fiscal deficit, balancing fiscal prudence and economic growth. The government has allocated significant funds for transport recognition and digital infrastructure, with a ₹1.5 lakh crore interest-free loan to states. The Asset Monetisation Plan 2025-30 is expected to raise ₹10 lakh crore, further boosting infrastructure. Despite this, concerns about unemployment, inflation, and regional imbalances persist, with states like Kerala and Telangana voicing dissatisfaction over unmet demands.
FISCAL BLUEPRINT for A VIKASIT BHARAT
The 2025-26 budget positions India as a self-sufficient economic powerhouse with a focus on agriculture, MSMEs, investment, and exports. Key areas include infrastructure, digital innovation, and human capital development. While the focus on AI and skilling is promising, the employment issue remains a challenge. The budget lays out an ambitious vision, but its success hinges on implementation. If executed effectively, it could be the catalyst for India’s Vikasit Bharat.
Author: Kanika Jakhmola, Prerit Agrawal, Shivangi Batra and Radhika Agarwal
Illustration: Ashmeet Kaur
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