Union Budget 2025-26: Key Highlights and Insights
Finance Minister Nirmala Sitharaman presented the Union Budget for 2025-26 on February 1, marking her eighth consecutive budget announcement. This is the second full-fledged budget under the Modi 3.0 government, aiming to strengthen economic growth, ensure inclusive development, and uplift various sectors while addressing the concerns of the middle class.
Budget Overview
The Union Budget 2025-26 focuses on accelerating economic expansion, boosting industry and social sectors, supporting rural development, and enhancing consumer confidence. A key highlight is the emphasis on middle-class relief, as well as targeted support for agriculture, manufacturing, employment generation, MSMEs, and innovation. Additionally, a new income tax bill is set to be introduced in Parliament next week, promising greater transparency and simplification.
This budget has been framed against the backdrop of a projected GDP growth rate of 6.4% for the current financial year, a four-year low.
Income Tax Relief for Middle Class
One of the biggest takeaways is the increased tax exemption limit. Under the new tax regime, individuals earning up to Rs 12 lakh annually will be exempt from income tax. For salaried employees, this limit effectively rises to Rs 12.75 lakh per annum, factoring in a standard deduction of Rs 75,000. This move is expected to provide significant financial relief to the middle class and increase disposable income. The government anticipates foregoing approximately Rs 1 lakh crore in direct tax revenue due to these measures.
Customs Duty Revisions: What’s Cheaper?
The budget introduced several changes to customs duties, making key products more affordable:
- Medicines: 36 life-saving drugs for cancer and chronic illnesses are now fully exempt from basic customs duties.
- Electronics: The basic customs duty (BCD) on open cells and components for electronic goods is reduced to 5%.
- Critical Minerals: Cobalt powder, lithium-ion battery waste, and 12 other essential minerals now enjoy BCD exemptions.
- EV & Mobile Battery Manufacturing: Over 35 additional items for EV batteries and 28 goods for mobile phone batteries are added to the exemption list.
- Wet Blue Leather: Now fully exempted from basic customs duty.
- Frozen Fish Paste (Surimi): BCD reduced from 30% to 5%, benefiting export-oriented seafood production.
- Shipbuilding Materials: Raw materials for shipbuilding remain exempt from BCD for another decade.
- Marine Products: Various categories of marine products will now see reduced import duties.
Customs Duty Hikes: What’s Getting Costlier?
While several goods became cheaper, others saw increased customs duties:
- Interactive Flat-Panel Displays: The duty on these has been increased from 10% to 20%.
- Knitted Fabrics: Higher duty rates to support domestic textile manufacturing.
- Telecom Equipment & Plastic Products: Increased import duties to encourage local production.
Other Key Announcements
- Provisional Assessments: A two-year time limit is introduced for provisional customs assessments, ensuring faster clearance.
- Tariff Simplification: Seven additional tariff rates have been eliminated, following similar steps in previous budgets.
- Social Welfare Surcharge: Now exempted on 82 tariff lines that are subject to cess.
- Taxation Changes:
- The time limit for filing Income Tax Returns (ITR) has been extended from two to four years.
- The Tax Collected at Source (TCS) threshold under the Liberalised Remittance Scheme (LRS) is raised from Rs 7 lakh to Rs 10 lakh.
- The Tax Deducted at Source (TDS) limit on rental income is now Rs 6 lakh.
- Kisan Credit Card: The loan limit has been increased from Rs 2 lakh to Rs 5 lakh, offering more financial support to farmers.
- Industrial Growth: Enhanced focus on research and development (R&D), MSMEs, and capital goods.
- Foreign Direct Investment (FDI): India will now allow 100% FDI in the insurance sector under revised guidelines.
Economic Outlook & Fiscal Discipline
The Economic Survey 2024-25 forecasts India’s GDP growth to be in the range of 6.3% to 6.8% for FY 2025-26. Additionally, food inflation is expected to ease in the final quarter of FY25. The fiscal deficit target has been set at 4.4%, reflecting the government’s commitment to maintaining financial stability while ensuring continued investment in growth sectors.
Final Thoughts
The Union Budget 2025-26 presents a balanced approach to economic growth, fiscal discipline, and social welfare. With a clear focus on tax relief, industrial advancement, and financial inclusion, the budget aims to boost investor confidence while ensuring broader economic participation. The upcoming income tax bill is another aspect to watch closely, as it could bring further clarity and simplifications to the taxation framework.
Disclaimer: This article is for informational purposes only and should not be considered financial or investment advice.
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