The much-awaited Union Budget 2025 is finally here! Announced against the backdrop of global economic headwinds, inflation, and slow wage growth, the Union Budget is a comprehensive strategy with forward-thinking policies to inject much-needed dynamism into the market.
India is the world’s fastest-growing economy in terms of growth numbers despite a lower-than-expected growth of 6.3 per cent as projected for FY 2024-25. Therefore, the proposed Budget highlights the government’s strategic approach to balance fiscal prudence and growth objectives.
The Union Budget hinges around:
- Accelerating economic growth,
- Invigorating private sector investments,
- Empowering MSMEs,
- Advancing infrastructure development, and
- Putting more money into the hands of India’s rising middle class.
The upcoming fiscal year’s Budget introduces transformative reforms in taxation and financial regulation, emphasizing agriculture, exports, and urban development. These reforms aim to achieve the long-term vision of Viksit Bharat 2047.
Take a peek into the game-changing reforms of the Union Budget 2025 and how they would revitalize the Indian economy.
Tax reforms in the 8th Union Budget
The first positive aspect of the Budget offered in personal income taxes comes as a breath of fresh air. Salaried individuals with a total income of Rs. 12 lakh per annum will be exempt from tax under the new tax regime. This, along with a standard deduction of Rs. 75,000, among other measures, is set to increase disposable incomes and consumption significantly.
The Private Final Consumption Expenditure (PFCE) has historically been closely aligned with the GDP until divergence in FY 2022-23. PFCE’s share of GDP dropped from 58.1% in FY 2021-22 to 55.8% in FY 2023-24, showcasing a decline in growth from 6.8% to 4%.
The Centre’s decision to slash income tax burdens comes after the NDA government’s underwhelming performance in the 2024 polls. The revised tax rates are an economic strategy that gives the middle class enhanced spending power. Given stagnant incomes, a weak job market, and fallen consumer credit, this tax sop is a demand-led growth idea.
Amidst other reforms,
- The Union Budget also announced a timeline extension to file updated returns from the current limit of two years to four years.
- The annual limit of Rs. 2.4 lakh for tax deducted at source (TDS) on rent was also revised to Rs. 6 lakh.
The Union Budget’s emphasis on empowering agriculture
The backbone of the Indian economy is agriculture, the largest employer but the slowest growing sector of India with the lowest average labour productivity. The cyclical food price inflammation, lack of market linkages, and deep-seated structural inefficiency continue to plague India’s agricultural sector.
However, the Union Budget has undertaken specific initiatives to propel this sector:
- The Prime Minister Dhan-Dhaanya Krishi Yojana covers 100 districts to enhance productivity. The program aims to strengthen crop diversification, production, post-harvest storage, and irrigation infrastructure.
- A standout example is the creation of the Makhana Board, which aims to increase the production and export of makhana, touted globally as a healthy snack.
- A six-year mission for ‘Aatmanirbharta in Pulses’ will focus on the self-sufficient procurement of Tur, Urad, and Masoor.
- The loan limit for Kisan Credit Cards has been increased from Rs. 3,00,000 to Rs. 5,00,000, providing greater financial security to farmers.
Bolstering MSMEs through the Union Budget 2025
Considered the second engine of the Indian economy, MSMEs contribute 45 per cent to India’s exports. The Budget announced several key measures to propel the growth of this sector:
- The doubling of credit guarantee and turnover limits for MSMEs comes as a welcome measure, facilitating greater access to capital and technology.
- The financial boost provided to Scheduled Castes (SCs), Scheduled Tribes (STs) and women is a significant step in financially empowering marginalised sections.
- The National Manufacturing Mission’s ultimate vision is to put India’s MSMEs on the global map. It also aims to leverage the ‘Make In India’ initiative to draw focus on the country’s toy and leather manufacturing industries in particular.
- Registering one crore gig workers on the e-Shram portal is a significant step towards enhancing social security support and inclusion.
More key highlights from the Union Budget 2025
This is not it. Among other reforms announced in the Budget:
- The Modi 3.0 Government has undertaken the initiative of generating 22 lakh job opportunities to boost the Indian economy.
- Investment in infrastructure, upskilling, and innovation have remained core themes throughout the Budget announcement. These include broadband connectivity under the BharatNet project, creating a Center of Excellence in Artificial Intelligence (AI), and urban planning and water sanitation projects, to name a few.
- The Union Budget also suggested increasing the foreign direct investment (FDI) limit from 74% to 100% to attract more foreign investments in the insurance sector.
Union Budget 2025: A new dawn for India’s fiscal future
The marriage of budgetary discipline with forward-thinking reforms, as reflected in the Union Budget, has breathed life into India’s fiscal economy. It reflects the Government’s commitment to promoting sustainable economic growth.
Frequently Asked Questions –
1. Which one is better between the old and the new tax regimes?
The Union Budget 2025 introduced new tax slabs, making it more appealing to India’s salaried middle class. However, deciding which tax regime is better depends on individual financial situations and parameters such as income level and deductions claimed.
Tax slabs under the old regime –
Annual Income | Income Tax Slab |
Upto Rs. 3 lakh | Nil |
Rs. 3 – 6 lakh | 10% |
Rs. 6 – 9 lakh | 20% |
Rs. 9 – 12 lakh | 30% |
Tax slabs proposed for FY 2025-26 –
Annual Income | Income Tax Slab |
Upto Rs. 4 lakh | Nil |
Rs. 4 – 8 lakh | 5% |
Rs. 8 – 12 lakh | 10% |
Rs. 12 – 16 lakh | 15% |
Rs. 16 – 20 lakh | 20% |
Rs. 20 – 24 lakh | 25% |
More than 24 lakh | 30% |
The new tax regime has an edge over the old one, considering the leeway it provides to salaried individuals with incomes up to Rs. 12.75 lakh. It also eliminates most deductions and exemptions, including the house rent allowance (HRA), section 80C (investments in PF, PPF, ELSS, etc.),. and home loan interest deductions.
2. How will the Union Budget impact India’s current account deficit (CAD)?
The Current Account Deficit (CAD) measures a country’s economic health by balancing the export and import of goods, services, and capital. However, India’s CAD has shown signs of narrowing due to the rise in service exports and trade deficit in goods. Factors such as the depreciating rupee, rising gold imports, and shifting global commodity prices have made imports more expensive.
Faced with these complexities, the Union Budget seeks to strengthen India’s global trade position. The Atmanirbhar Bharat initiative aims to expand local manufacturing in electronics, semiconductors, and pharmaceutical industries. Export headwinds from U.S. trade policies can further act as a blow to India’s export sector. Therefore, the Budget encourages import substitution, especially in energy, defence, and capital goods, to curb the trade deficit and build long-term resilience against global supply chain disruptions.