- Saturday, February 01, 2025
The budget offers significant income tax cuts for the middle class and has unveiled a blueprint for next generation reforms
By: India Weekly
FINANCE MINISTER Nirmala Sitharaman on Saturday (01) announced significant income tax cuts for the middle class and unveiled a blueprint for next generation reforms as she looked to shore up a slowing economy amid global uncertainties.
Individuals earning up to ₹1.27 million in a year will not have to pay any taxes after she raised the exemption threshold from ₹700,000.
She also altered tax slabs for people earning above this threshold to help save up to ₹110,000 in taxes for those with income up to ₹2.5 million in a year.
The tax cuts, which will cost the exchequer about ₹1 trillion, will benefit 63 million people, or more than 80 per cent of taxpayers, who earn up to ₹1.2 million a year.
“The new structure will substantially reduce taxes on the middle class and leave more money in their hands, boosting household consumption, savings and investment,” Sitharaman said presenting what was dubbed as ‘reformist’ budget for the next fiscal in Lok Sabha.
The Budget for April 2025 to March 2026 fiscal (FY26) proposed to raise foreign investment limit in insurance sector to 100 per cent from current 74 per cent and continued spending spree on infrastructure while raising allocations for social sectors as well as providing for measures for poor, youth, farmers and women.
All this she did while managing to stick to the fiscal consolidation roadmap, projecting a fiscal deficit of 4.4 per cent of the GDP in FY26 as against an estimated 4.8 per cent in the current year ending March 31.
Also announced were duty cuts on intermediaries and certain life saving drugs.
To balance the revenue lost, she budgeted a modest increase in capital spending at ₹11.21 trillion in the next financial year compared to a lowered ₹10.18 trillion in current fiscal. Besides, an increase in dividend expected from the Reserve Bank and other government-owned financial institutions will also help to contain the losses.
Slowdown
The budget comes against the backdrop of the Indian economy growing at its weakest pace since pandemic and rising geopolitical risks particularly with the new US president Donald Trump threatening to impose widespread tariffs including on India.
The 6.4 per cent GDP growth estimated for the current fiscal and 6.3 to 6.8 per cent in the next are well below the 8 per cent growth needed to meet the ambitious goal of making India a developed nation by 2047.
“Our endeavour will be to keep the fiscal deficit each year such that the central government debt remains on a declining path as a percentage of the GDP,” she said, projecting debt at 50 per cent of GDP by March 2031.
Railways
For the second consecutive year, the Indian Railways’ capital expenditure for the financial year 2025-26 has been set at ₹2.52 trillion, with a focus on enhancing safety and electrification.
Agriculture
Other measures include a national mission to push high-yielding crops with a special focus on pulses and cotton production, hike in the limit of subsidised credit to farmers to ₹500,000 from ₹300,000, missions to push manufacturing and exports, a new policy for labour intensive sectors like leather and footwear and a scheme to make India a global hub for toy manufacturing.
The finance minister also announced a social security cover for nearly 1 crore gig workers and a ₹100 billion fund of funds for startups.
Another major announcement was setting a target of at least 100 gigawatt of electricity from nuclear energy by 2047 and amendment to nuclear liability regulations to allow private sector investment.
Sitharaman also announced reduction in duties on a raft of goods including open cells, while fully exempting critical minerals such as cobalt, scraps of lithium-ion battery, lead, zinc and a few others from import duty.
Reactions
Commenting on the Budget, Christian de Guzman, Senior Vice President, Moody’s Ratings, said: “As the government unveiled its budget for 2025-26 amid a somewhat dampened macroeconomic backdrop as compared to recent years, it has had to slow the pace of fiscal consolidation to provide firmer support to growth.”
“In particular, announced tax relief measures have constrained the growth of revenue receipts, which will rise at its slowest pace since 2022-23; as such, falling expenditure as a share of GDP has borne the brunt of the projected narrowing of the fiscal deficit even as the emphasis on capital expenditure has been sustained,” he said.
“Although the Union government remains on track to meet its near-term policy goals, we do not expect a sufficient improvement in the debt burden, or the proportion of the budget earmarked for debt servicing to change our broader assessment that India’s fiscal strength will remain weaker than most of its investment-grade peers,” he added.
‘A band-aid’
Congress leader Rahul Gandhi on Saturday slammed the Union Budget as a “band-aid for bullet wounds,” saying that the Centre was “bankrupt of ideas”.
He said solving the economic crisis demanded a paradigm shift.
“A band-aid for bullet wounds! Amid global uncertainty, solving our economic crisis demanded a paradigm shift,” Gandhi said in a post on X
The Congress earlier criticised the Union Budget as bereft of cure to “illnesses” of stagnant real wages, lack of buoyancy in mass consumption, sluggish rates of private investment, and a complicated GST system that the economy is suffering from.
Delhi polls
While the Election Commission has barred the BJP-led Central government from making Delhi-specific announcements in the Union Budget, the income tax relief for the middle class is seen by many as a possible game-changer in the February 5 Assembly polls.
Delhi has 400,000 income tax payers. With the Modi government’s announcement in the Budget 2025-26, the BJP will try to win over the middle-class vote, which has been a crucial demographic in Delhi elections.
BJP leaders termed the relief a big boost for the middle class, asserting it will strengthen the party’s support among the middle class in the national capital.
Delhi BJP president Virendra Sachdeva said this is an important announcement that will deepen the confidence of the middle class in the BJP. (PTI)
