Budget 2025-26 key takeaways: No tax on income up to ₹12 lakh, reforms for growth
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The Union Budget for the financial year 2025-26, presented by Finance Minister Nirmala Sitharaman, introduces key measures with the expectation that they could drive economic growth, streamline governance, and enhance financial inclusion.
By presenting the budget for the eighth consecutive year, Finance Minister Nirmala Sitharaman set a record as the first finance minister to present the budget for the third term of Prime Minister Narendra Modi's government.
Among the most notable announcements is the income tax exemption for individuals earning up to ₹12 lakh under the new tax regime, focusing on the labour and middle class. The budget also focuses on transformative reforms in sectors such as infrastructure, power, MSMEs, and agriculture, with a strong emphasis on sustainable growth and innovation.
Key announcements
- Income Tax Exemption: No income tax payable up to ₹12 lakh under the new tax regime, providing significant relief to the middle class.
- Tax Slab Revisions: New tax slabs with salaried individuals earning above ₹24 lakh to pay 30% tax. The tax return filing limit has been extended from 2 to 4 years.
- Senior Citizens’ Interest Income: The tax threshold for interest income increased to ₹1 lakh for senior citizens.
- TDS and TCS Reforms: TDS on rent increased to ₹6 lakh; TCS on remittances for education funded by loans removed; TCS threshold for remittances under LRS increased from ₹7 lakh to ₹10 lakh.
- Customs Tariff Reforms: Streamlined customs structure with the removal of 7 tariff rates, and exemptions on critical minerals like cobalt and lithium-ion battery waste.
- FDI in Insurance: Foreign Direct Investment in insurance increased from 74% to 100% for firms that invest entire premiums in India.
- Urban Challenge Fund: ₹1 lakh crore allocated for urban redevelopment and infrastructure projects, with a focus on public-private partnerships (PPP).
- Interest-Free Loans for Capital Expenditure: ₹1.5 lakh crore allocated for interest-free loans to encourage infrastructure development.
- MSME Support: Introduction of customized credit cards for MSMEs and an expanded fund-of-funds scheme to enhance access to capital.
- Agricultural Initiatives: Launch of the Han Dhanya Krishi Yojana for low-productivity districts and a focus on achieving self-reliance in pulses.
- Nuclear Energy Mission: Establishment of a Nuclear Energy Mission to generate 100 GW of nuclear power by 2047, with ₹20,000 crore earmarked for Small Modular Reactor (SMR) development.
- Revised Fiscal Deficit Target: The revised fiscal deficit for FY25 is set at 4.8%, with a target of 4.4% for FY26.
Economic Outlook and Growth Projections
India’s Economic Survey for 2024-25 projects a growth rate of 6.3% to 6.8% for the upcoming fiscal year. While this reflects a moderation from the previous years' high growth, it indicates a stable and sustainable trajectory. The government's strategic reforms aim to encourage industrial growth, innovation, and investments, with a focus on research and development (R&D), micro, small, and medium enterprises (MSMEs), and capital goods.
Income Tax reforms and relief for taxpayers
The introduction of a new income tax regime marks one of the most significant changes in the budget. With the exemption of income tax for individuals earning up to ₹12 lakh, the government aims to ease the financial burden on the salaried middle class, boosting disposable income and encouraging consumer spending.
The new regime also includes changes to tax slabs, with individuals earning above ₹24 lakh to pay a 30% tax rate. Additionally, the tax filing period has been extended to four years, ensuring greater ease and flexibility for taxpayers.
Other tax measures include increased thresholds for senior citizens' interest income and changes to the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) structures, benefiting various sections of society, including students, by removing TCS on remittances for educational purposes funded by loans.
Infrastructure and Urban Development
The budget’s focus on infrastructure is evident with the introduction of the ₹1 lakh crore Urban Challenge Fund. This initiative aims to improve urban redevelopment, water, and sanitation infrastructure, positioning cities as key drivers of growth. Alongside this, ₹10,000 crore is allocated for infrastructure projects in FY25, ensuring robust growth in the urban sector. The government also proposes interest-free loans of ₹1.5 lakh crore for capital expenditure, further stimulating infrastructure development across India.
Financial and Sectoral Reforms
Further strengthening India's economic framework, the budget proposes significant reforms in the financial sector, including raising the Foreign Direct Investment (FDI) limit in the insurance sector from 74% to 100% and rolling out a revamped central Know Your Customer (KYC) registry.
Support for MSMEs and Agriculture
MSMEs remain a central focus of the budget, with measures designed to improve access to credit and capital. The introduction of customized credit cards and the expansion of the fund-of-funds scheme will provide MSMEs with enhanced opportunities for growth. In agriculture, the government has introduced the Han Dhanya Krishi Yojana, focusing on low-productivity districts and aiming to improve credit access, crop diversification, and storage.
Clean Energy and Nuclear Power
The budget’s commitment to clean energy is reflected in the introduction of a Nuclear Energy Mission. The government aims to generate 100 GW of nuclear power by 2047, positioning nuclear energy as a key pillar of India’s energy strategy.
With proposed amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act, the budget encourages private sector participation in nuclear energy, while also focusing on developing Small Modular Reactors (SMRs) as part of a ₹20,000 crore R&D initiative. This is expected to strengthen India’s energy security and reduce dependence on fossil fuels.