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Published on 5 April 2025

2025-26 Indian Budget Overview: Key Income, Expenditure, and Tax Reforms

Overview of the 2025-26 Budget Presented by Smt. Nirmala Sitharaman

The recent budget presented by Finance Minister Smt. Nirmala Sitharaman marks her eighth consecutive budget, a record for a female finance minister in India. Previously, Mr. Pranab Mukherjee and Mr. Yashwant Sinha also presented eight budgets each. Smt. Sitharaman is on track to break their record in the following year, yet Mr. Morarji Desai still holds the distinction of presenting the highest number of budgets, totaling eleven.

In essence, the budget outlines the anticipated income and expenditure for the fiscal year 2025-26.

Income and Expenditure Breakdown

The budget can be dissected into sources of income and areas of expenditure, represented as follows:

Sources of Income

  • Borrowing & Other Liabilities: 24%
  • Income Tax: 22%
  • GST and Other Taxes: 18%
  • Corporate Tax: 17%
  • Non-Tax Receipts: 9%
  • Union Excise Duties: 5%
  • Customs: 4%
  • Non-Debt Capital Receipts: 1%

Expenditure Distribution

  • States’ Share of Taxes & Duties: 22%
  • Interest Payments: 20%
  • Central Sector Scheme: 16%
  • Centrally Sponsored Scheme: 8%
  • Defense: 8%
  • Finance Commission & Other Transfers: 8%
  • Other Expenditure: 8%
  • Major Subsidies: 6%
  • Pensions: 4%

Total: 100%

These figures represent estimates that may be subject to revision in the future.

Direct Tax Reforms

This week, a new Income Tax Bill was introduced, supporting the concept of "trust first and scrutinize later."

Key highlights of the direct tax reforms include:

  • Tax Regime Simplifications: Aiming to enhance ease of doing business for individuals and companies.
  • Personal Income Tax Reforms: Middle-class individuals will see no tax liability on income up to Rs. 12 lakh due to a rebate under Section 87A, not applicable on capital gains or income taxed at special rates. Salaried employees will benefit from a NIL tax up to a gross salary of Rs. 12.75 lakh, factoring in a standard deduction of Rs. 75,000.
  • TDS/TCS Rationalization: Doubling the TDS threshold for senior citizens from Rs. 50,000 to Rs. 1 lakh and increasing the TDS limit for rent from Rs. 2.40 lakh to Rs. 6 lakh.
  • Revised Thresholds: Overall TDS/TCS thresholds have been increased, except for TDS under Section 194C, which remains unchanged.
  • Extended Filing Timelines: The time limit to file updated returns has been extended from 2 years to 4 years.
  • Simplified Compliance for Charitable Institutions: The registration period for small charitable trusts with an income of Rs. 5 crore or less has been lengthened from 5 years to 10 years.
  • Claim for Self-Occupied Properties: Taxpayers can claim the annual value for 2 self-occupied properties instead of just 1.
  • International Transactions: A new scheme for determining the arm’s length pricing for international transactions will be introduced, lasting over a block period of 3 years.
  • Safe Harbor Expansion: The scope of safe harbor rules will be broadened to reduce litigation and ensure certainty in international taxation.
  • Startup Benefits: The period for incorporation benefits is extended by 5 years for startups established before April 1, 2030.
  • IFSC Benefits: Specific benefits will be provided to ship-leasing units, insurance offices, and treasury centers of global companies in the International Financial Services Centre (IFSC), with a cut-off date for commencement extended to March 31, 2030.

These proposed changes are expected to result in a revenue loss of around Rs. 1 lakh crore in direct taxes.

Indirect Tax Reforms

Several changes have been implemented in the area of indirect taxation, including:

  • Tariff Rate Reduction: Seven tariff rates have been removed, simplifying to just eight, including a 'zero' rate.
  • Medicinal Duty Exemptions: 36 life-saving drugs will be fully exempt from Basic Customs Duty, and six additional medicines will carry a concessional Basic Customs Duty of 5%. Furthermore, 37 more medicines and 13 new Patient Assistance Programs will also be exempt from Basic Customs Duty.
  • Support for EV and Battery Production: Exemptions for 35 capital goods related to electric vehicle battery manufacturing and 28 additional goods for mobile phone battery production.
  • Assessment Timelines: The time limit for finalizing provisional assessments has been set at 2 years, extendable by an additional year.
  • Post-Clearance Declarations: Importers and exporters may voluntarily declare material facts after customs clearance and pay duties with interest but without penalties.
  • Time Limit Extension for Imported Inputs: The timeframe for using imported inputs for specified end-uses has been extended from 6 months to 1 year.
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