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Published on 9 April 2025

India's Union Budget 2025-26: Key Reforms and Economic Impact

Introduction

The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, marks a pivotal moment in India's economic progression. Focused on inclusive development, tax relief, infrastructure improvements, and innovation, this budget aims to stimulate growth, support the middle class, and ensure fiscal discipline.

Income Tax Relief and New Slabs

  • Zero Income Tax Threshold: Individuals and pensioners will not incur income tax on earnings up to ₹12 lakh. With the updated standard deduction of ₹75,000, earnings of up to ₹12.75 lakh remain untaxed.

  • Revised Tax Slabs (New Regime):

Income Range (₹)Tax Rate (%)
Up to 4 lakhNil
4 – 8 lakh5
8 – 12 lakh10
12 – 16 lakh15
16 – 20 lakh20
20 – 24 lakh25
Above 24 lakh30

  • The old tax regime will continue unchanged.

  • TDS and TCS Rationalization:

    • The TDS limit on interest for senior citizens is now ₹1 lakh.
    • The TDS limit on rent has increased to ₹6 lakh.
    • Simplified compliance measures have been introduced.

Fiscal Management

  • Fiscal Deficit Target: The fiscal deficit is set at 4.4% of GDP for FY26, down from the revised estimate of 4.8% for FY25.

  • Total Expenditure: The total budget allocation stands at ₹50.65 lakh crore, with capital expenditure at ₹11.21 lakh crore, representing 3.1% of GDP.

  • Asset Monetization Plan: The government aims to generate ₹10 lakh crore from public asset monetization by 2030.

Agriculture & Rural Development

  • PM Dhan-Dhaanya Krishi Yojana: This initiative aims to support 1.7 crore farmers across 100 low-productivity districts.

  • Mission for Aatmanirbharta in Pulses: A six-year initiative focused on boosting production of Tur, Urad, and Masoor.

  • Makhana Board: A new Makhana Board will be established in Bihar, improving Kisan Credit Card (KCC) provisions for 7.7 crore farmers, fishermen, and dairy producers.

Infrastructure & Urban Development

  • Capital Expenditure Increase: A 10.1% increase in capital spending is allocated to highways, railways, and urban transport projects.

  • Smart Cities Mission: Incentives are provided for developers and buyers involved in affordable housing projects.

Support for Startups & MSMEs

  • Tax Holiday Extension: Startups registered before March 2027 will benefit from an extended tax holiday.

  • Micro-Enterprise Credit Cards: The introduction of credit cards for micro-enterprises and a dedicated fund to assist startups and new entrepreneurs.

  • GST Simplification: Enhancements in the GST framework and faster refunds for MSMEs.

Science, Innovation & Education

  • R&D Funding: An allocation of ₹20,000 crore is designated for private sector-led research and development, providing 10,000 PM Research Fellowships at IITs and IISc.

  • Broadband Expansion: High-speed internet will be deployed in all government secondary schools and primary healthcare centers (PHCs), along with an increase in IITs and medical college seats.

Customs Duty and Export Promotion

  • Duty Cuts: Import duty reductions for frozen fish paste, fish hydrolysate, critical minerals, and specific textile machinery to boost manufacturing and exports.

  • Targeted Exemptions: Exemptions are extended to the leather and electronics industries.

Social Welfare & Healthcare

  • Medical Seats Expansion: An additional 75,000 medical seats will be created within five years, alongside the establishment of daycare cancer centers in all district hospitals within three years.

  • Nutritional Development Programs: The implementation of initiatives such as Saksham Anganwadi and Poshan 2.0 will focus on nutrition and child development.

Outdated or Amended Facts

  • Section 80C Limit: The limit remains at ₹1.5 lakh with no new adjustments.

  • Home Loan Interest Deduction: This continues to be capped at ₹2 lakh.

  • Tax Regime Changes: Substantial changes apply only to the new tax regime, with the old regime remaining as is.

Nuanced and In-Depth Additions

  • Rural Prosperity Program: A multi-sector initiative partnered with states to address underemployment in agriculture through skill development, technological advancements, and rural investments.

  • Gene Bank Establishment: Establishment of a second national gene bank for crop germplasm, enhancing food and nutritional security.

  • Healthcare Improvements: Expansion of daycare cancer centers and medical college seats to enhance healthcare accessibility.

  • Women’s Empowerment Initiatives: Aiming for 70% female participation in economic activities under the "Sabka Vikas" theme.

  • Detailed Asset Monetization Roadmap: A comprehensive strategy for monetizing public assets to finance future innovations.

Conclusion

This budget introduces significant reforms, including revamped income tax slabs under the new regime, substantial support for agriculture, record capital expenditure for infrastructure, and enhanced backing for startups and MSMEs. In addition, increased funding for science, education, and healthcare coupled with customs duty cuts will stimulate growth in exports and manufacturing. Fiscal discipline is underscored with a reduced fiscal deficit target of 4.4% of GDP and a clear asset monetization plan.

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