Union Budget 2025-26: Key Announcements and Implications

On February 1, 2025, Finance Minister Nirmala Sitharaman presented the much-anticipated Union Budget 2025-26, a financial roadmap aimed at boosting economic growth, improving tax compliance, and strengthening fiscal discipline. This budget comes at a crucial time as the Indian economy navigates inflationary pressures, global uncertainties, and the need for sustained development.

This year’s budget introduces some key tax reforms, changes in direct and indirect taxation, and strategic investments in various sectors. While some relief measures for individuals and businesses have been introduced, growth and fiscal prudence remain the key theme.

For the common taxpayer, the budget holds special significance, determining how much money stays in their pockets and how government policies impact their livelihoods. Let’s look into the key announcements, their implications, and what they mean for individuals, businesses, and the economy at large.

A: Personal & Corporate Taxation

1. Personal Income Tax: Reliefs and Rationalization

Personal income tax remains one of the most closely watched components of any budget. While there were expectations of major relief measures, the government has taken a balanced approach by providing incremental benefits while maintaining fiscal prudence.

• The basic exemption limit has been increased from ₹3 lakh to ₹5 lakh under both the new and old tax regimes.
• Standard deduction for salaried individuals has been increased from ₹50,000 to ₹75,000, providing additional relief to middle-class taxpayers.
• Under the new tax regime, the rebate under Section 87A has been raised, making income up to ₹7 lakh effectively tax-free. Thus effectively, a non-salaried person with up to ₹12 lakhs income and a salaried person with up to ₹12.75 lakhs income will not be required to pay any income tax.
• For senior citizens above 75 years, filing of income tax returns has been waived if their only income source is pension and interest.
• Annual value of self-occupied properties (up to two properties) shall be taken as NIL if the owner occupies it for own residence or cannot occupy it for any reason.

These changes will lead to higher disposable income, potentially increasing consumer spending. The government’s move to increase tax relief while keeping tax slabs unchanged ensures that benefits are extended without significant revenue loss.

2. Simplification of the Tax Regime: A Move towards Greater Clarity

The government has reiterated its commitment to simplifying tax compliance and reducing litigation. Key measures include:

• The new tax regime continues as the default option, but taxpayers can still opt for the old regime.
• Digitization of tax filing with enhanced AI-driven assistance for error reduction.
• Faster processing of refunds and assessments, reducing disputes.
• The faceless assessment and appeal system has been further expanded, reducing human intervention in tax processing.
• The time limit to file updated return is extended from two years to four years from the end of the relevant assessment year.

These steps will make tax compliance smoother for individuals and businesses, reducing bureaucratic hurdles and promoting transparency.

3. Corporate Taxation: Stability for Businesses

No major revisions were made to corporate tax rates, keeping India’s tax structure competitive globally.

• Corporate tax rate remains at 22% (for domestic companies not availing exemptions).
• The 15% concessional tax rate for new manufacturing companies has been extended until March 31, 2027, encouraging industrial growth.
• Extension of certain tax incentives for startups and MSMEs to encourage entrepreneurship.
• Tax incentives for R&D, innovation, and AI-based industries to promote tech-driven growth.

By maintaining tax rates and extending select incentives, the budget supports business continuity and investment planning. The continued 15% tax rate for new manufacturing entities aligns with the ‘Make in India’ and “Atmanirbhar Bharat” initiatives, fostering industrial growth.

B: Capital Gains Taxation, Digital Economy, TDS, and Investment Incentives

1. Short-Term Capital Gains (STCG) Tax

The budget introduces no changes in STCG tax despite expectations of somewhat equalized effective rates for equities and bonds.

• STCG on equity shares and equity-oriented mutual funds remains at 20% for most investors.
• Debt mutual funds and other assets continue to be taxed at individuals’ slab rates.

With no changes in the rates, the retail investors remain largely unaffected.

2. Long-Term Capital Gains (LTCG) Tax

The budget introduces minor revisions to LTCG taxation while maintaining consistency for most investors.

• Listed Equity Shares:
  • The LTCG tax rate for resident investors remains unchanged at 12.5% on gains exceeding ₹1.25 lakh, with no indexation benefits.
  • For non-resident investors (FIIs/FPIs), the LTCG tax rate has been increased to 12.5%, a move aimed at aligning international tax structures.
• Real Estate and Unlisted Shares:
  • For properties and unlisted shares purchased on or after July 23, 2024, LTCG will be taxed at 12.5% without indexation benefits.
  • For properties and unlisted shares purchased before July 23, 2024, taxpayers have the option to:
    • Pay 12.5% LTCG tax without indexation, or
    • Pay 20% LTCG tax with indexation benefits.
• Sovereign Gold Bonds (SGBs) retain their LTCG tax exemption if held till maturity.
• Infrastructure and startup investments continue to enjoy targeted LTCG exemptions.

The increase in LTCG tax for non-resident investors in listed equity might lead to some short-term market volatility but is unlikely to deter long-term participation.

3. Digital Economy and Cryptocurrency Taxation

The government continues to refine taxation policies for the digital economy, including e-commerce, fintech, and cryptocurrencies.

• The 30% tax on cryptocurrency income remains unchanged, reaffirming the government’s stance on discouraging speculative crypto trading.
• No provision for set-off of losses from digital assets against other income.
• TDS on virtual digital asset transactions has been slightly reduced from 1% to 0.5%, easing liquidity concerns for traders.
• Digital transactions above ₹20 lakh in a financial year will require mandatory PAN reporting to curb tax evasion.
• Stronger regulatory oversight and reporting requirements for crypto exchanges.
• Incentives for fintech startups and digital banking enhancements to drive financial inclusion.

The unchanged crypto tax regime indicates that the government remains cautious about fully legitimizing digital assets. The reduction in TDS will improve liquidity in crypto markets, but the high tax burden will continue to discourage speculative trading.

4. Changes in TDS Rates: Streamlining Compliance

The Union Budget 2025-26 introduces select changes in Tax Deducted at Source (TDS) rates to simplify compliance and improve tax efficiency. Key adjustments include:

• Reduction in TDS rates on certain payments to small businesses and professionals to ease cash flow constraints.
• Rationalization of TDS on online gaming and cryptocurrency transactions, ensuring better compliance without overburdening taxpayers.
• Removal of higher TDS/TCS for non-filers of return of income to reduce compliance burden on taxpayers.

These changes aim to reduce tax burdens for compliant taxpayers. The adjustments in digital transactions and gamingreflect the evolving economic landscape, ensuring better revenue collection while promoting transparency in taxation.

5. Tax Incentives for Investments: Encouraging Long-Term Wealth Creation

Investment-linked tax incentives play a crucial role in shaping financial decisions for individuals and businesses. While expectations were high for new tax-saving instruments, the budget has largely focused on only fine-tuning existing provisions.

• Section 80C limit remains unchanged at ₹1.5 lakh, despite calls for an increase to boost savings.
• ELSS mutual funds continue to offer tax deductions, but no new instruments have been added to the eligible list.
• Tax benefits on investments in startups and MSMEs extended, encouraging entrepreneurial growth.
• Sovereign Gold Bonds (SGBs) retain tax-free maturity status, reaffirming the government’s push for financial assets over physical gold.
• Greater deductions for investments in infrastructure and renewable energy bonds.
• Incentives for angel investors and venture capital funds to support startups.

The status quo on tax-saving options means that investors will need to continue leveraging existing tools efficiently. The extended incentives for startups and MSMEs will promote business investments, while maintaining tax-free status on SGBs supports wealth preservation through financial instruments.

6. Deductions & Incentives: No Major Additions, but Stability Maintained

Deductions play a vital role in lowering taxable income and providing financial relief to taxpayers. This year’s budget has introduced minor adjustments but no drastic changes.

• Standard deduction for salaried individuals increased from ₹50,000 to ₹75,000, providing direct tax relief.
• Housing loan interest deduction under Section 24(b) remains at ₹2 lakh, with no enhancement despite rising real estate costs.
• Medical insurance premium deduction under Section 80D has been increased for senior citizens, allowing higher claimable amounts.
• Education loan interest deduction continues under Section 80E, ensuring affordability in higher education.
• NPS Vatsalya accounts to get the same tax treatment as normal NPS accounts.

The increase in standard deduction benefits salaried individuals, enhancing disposable income. However, the lack of revision in home loan interest deductions means that homebuyers will continue to face high EMI burdens. The adjustments in medical insurance deductions offer better financial security for elderly taxpayers.

C: Indirect Taxes and Compliance Enhancements

1. Indirect Taxes, GST, and Customs Duty Proposals: Managing Costs and Consumer Impact

The budget maintains a steady course on indirect taxation, ensuring revenue stability while keeping inflation in check. Key developments include:

GST Reforms and Compliance Enhancement

• No major changes in GST slabs, ensuring stability for businesses.
• Simplified compliance for MSMEs and small businesses, reducing paperwork and improving ease of doing business.
• Stronger GST enforcement to curb tax evasion through advanced AI-driven monitoring.
• E-invoicing threshold lowered to bring more businesses under digital compliance.

Customs & Excise Duty Proposals

• Customs duty rates rationalized to support domestic manufacturing and value addition, promote exports and facilitate trade.
• Lowered import duties on critical components for sectors like renewable energy, electric vehicles, and semiconductors to boost local production.
• Higher import duties on luxury goods and non-essential items to promote ‘Make in India’ and protect domestic industries.
• Reduction in import duties on essential commodities to ease inflationary pressures.
• Higher excise duties on tobacco and related products to discourage consumption and generate additional revenue.

Maintaining GST stability ensures predictability for businesses, while compliance simplifications help smaller enterprises grow. The customs duty adjustments strike a balance between protecting local industries and curbing inflation. Higher duties on luxury imports encourage domestic consumption, while incentives for renewable energy and semiconductor production align with long-term economic and sustainability goals.

2. Tax Compliance & Enforcement: Strengthening Transparency and Efficiency

The government has emphasized improving tax compliance through digital interventions and stricter enforcement measures.

• Enhanced AI-driven scrutiny of tax filings to detect fraud and evasion.
• Faceless assessment and appeal mechanisms to improve taxpayer experience.
• Greater penalties for tax evasion and non-compliance to deter tax fraud.
• New initiatives to bring informal sector transactions under the tax net.

Strengthening tax compliance mechanisms will improve revenue collection while reducing litigation. The increased use of AI in tax assessments will enhance efficiency and minimize human intervention, making the process more transparent and predictable for taxpayers.

D: Fiscal Discipline, Economic Themes, and Broader Economic Outlook

1. Fiscal Discipline and Deficit Management: Balancing Growth with Stability

One of the most critical aspects of the Union Budget 2025-26 is the government’s focus on maintaining fiscal discipline while ensuring robust economic growth. Given the global economic uncertainties and domestic needs, fiscal prudence remains a priority.

• The fiscal deficit target for FY 2025-26 is set at 4.4% of GDP, aligning with the roadmap towards a sub-4.5% target by FY 2027.
• Increased tax revenue mobilization through enhanced compliance measures without introducing new levies.
• Higher capital expenditure allocations to boost infrastructure while keeping revenue expenditure under check.
• Government borrowing kept within sustainable limits to avoid excessive debt burden.

Maintaining fiscal discipline will enhance investor confidence and credit ratings while ensuring macroeconomic stability. A well-managed fiscal deficit supports sustainable growth, keeping inflation and interest rates in check.

2. Economic Themes: Key Focus Areas Driving Policy

The Union Budget 2025-26 is built around strategic economic themes aimed at fostering infrastructure development, employment generation, and social welfare, all the while maintaining fiscal prudence. The government has continued its emphasis on capital expenditure, human capital investment, and inclusive growth to ensure sustainable economic progress.

a. Infrastructure Development and Employment Generation

Infrastructure remains a top priority, with a significant increase in capital expenditure to boost economic activity and job creation. Key initiatives include:

• Increased allocation to infrastructure projects, including highways, railways, and urban development.
• Support for manufacturing under the Production-Linked Incentive (PLI) scheme, fostering industrial expansion and employment.
• Development of logistics and multimodal transport to enhance supply chain efficiency.
• Expansion of the rural roads program and irrigation projects, promoting agricultural sustainability.

b. Investments in Health, Education, and Social Welfare

Human capital development remains at the forefront, with increased budgetary allocations to:

• Public healthcare infrastructure, including expansion of the Ayushman Bharat scheme.
• Education reforms, focusing on digital learning, skill development, and research funding.
• Affordable housing programs and rural welfare schemes, ensuring inclusive growth.
• Strengthening social security measures, particularly for marginalized communities.

c. Implications:

• Boost to employment and economic activity through infrastructure-led growth.
• Improved public services in healthcare and education, enhancing quality of life.
• Increased rural development and urban transformation, driving overall economic stability.

By focusing on these key themes, the budget sets the stage for long-term economic resilience while addressing immediate growth and welfare needs.

3. Likely Outcomes Based on Economic Context

Given the current economic scenario, the likely impact of the budget can be assessed across various dimensions:

• GDP Growth: The continued infrastructure push and stable taxation policies are expected to keep GDP growth in the 6.5-7% range.
• Inflation Control: Rationalized indirect taxes and supply-side interventions will help curb inflationary pressures.
• Investment Climate: Policy stability and tax incentives will support FDI inflows and domestic investments.
• Employment Generation: Increased capital expenditure and manufacturing incentives will drive job creation across sectors.

The budget’s measures are expected to support sustained economic growth, improve business sentiment, and enhance India’s global economic positioning. While external risks remain, strong domestic fundamentals will help mitigate potential challenges.

Conclusion: A Pragmatic Budget for Growth and Stability

The Union Budget 2025-26 strikes a careful balance between economic expansion and fiscal prudence, with a strong focus on infrastructure, employment, and tax stability. While no major relief has been provided for the average taxpayer, the unchanged tax slabs ensure predictability, and targeted incentives in investment and employment sectorsmay lead to indirect benefits over time.

For salaried individuals and small businesses, simplified compliance measures and a stable tax regime offer ease of planning, even as higher LTCG taxes may marginally impact some investors. On a broader level, higher capital expenditure, manufacturing incentives, and targeted welfare programsare expected to drive long-term economic benefits, despite inflationary and global risks.

Ultimately, this budget prioritizes long-term economic resilience over short-term relief, ensuring that taxpayers, businesses, and investors alike operate in a stable and growth-oriented environment.