On February 1, 2025, Finance Minister Nirmala Sitharaman presented India’s Union Budget for the fiscal year 2025-26, outlining a comprehensive plan aimed at stimulating economic growth, fostering inclusivity, and addressing both domestic and global challenges. This budget is particularly noteworthy as it introduces significant tax reforms, substantial investments in key sectors, and strategic initiatives designed to position India as a resilient and self-reliant economy.
Union Budget 2025: No Income Tax Payable on Income Up to ₹12 Lakh Under New Tax Regime, Standard Deduction Unchanged
Updated on: Feb 1, 2025, 6:53 PM IST
The Union Budget 2025 has brought significant tax relief, with no income tax payable on annual earnings up to ₹12 lakh under the new tax regime, aiming to support India’s middle class.
Sectors Likely to be Impacted by the Upcoming Union Budget
The Union Budget 2025 is set to play a transformative role across various sectors, aligning with India’s economic priorities and development goals. Among the sectors expected to see significant focus are healthcare, education, agriculture, technology, and renewable energy
Topics Covered
- New vs Old Tax Regime (FY 2025-26)
- Section 87A Rebate Changes: A Boost for Lower-Income Taxpayers?
- A Step Towards Boosting Middle-Class Spending
- Conclusion
On February 1, 2025, Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26, unveiling significant tax reforms that aim to provide relief to the middle class. A much-anticipated announcement was made regarding income tax exemptions under the new tax regime.
The Finance Minister confirmed that no income tax will be payable for annual incomes of up to ₹12 lakh under the new tax structure. This decision is set to put more money in the hands of taxpayers, contributing to household consumption, savings, and investment, as per Sitharaman’s speech.
New vs Old Tax Regime (FY 2025-26)
Budget 2025: Tax slab under new tax regime
| Income range (Rs.) | Tax rate |
| 0 – 4 lakh | Nil |
| 4 – 8 lakh | 5% |
| 8 – 12 lakh | 10% |
| 12 – 16 lakh | 15% |
| 16 – 20 lakh | 20% |
| 20 – 24 lakh | 25% |
| Above 24 lakh | 30% |
This regime aims to reduce the tax burden and increase disposable income.
Income up to ₹4 lakh is tax-free.
Tax rates start at 5% for income above ₹4 lakh and gradually increase.
The highest tax rate of 30% applies to income above ₹24 lakh.
Salaried individuals can claim a standard deduction of ₹75,000, effectively making incomes up to ₹12.75 lakh tax-free.
Union Minister of Finance and Corporate Affairs Smt. Nirmala Sitharaman presented the Union Budget 2025-26 in Parliament. Here is the summary of her budget speech;
Together, we embark on a journey to unlock our nation’s tremendous potential for greater prosperity and global positioning under the leadership of Hon’ble Prime Minister Shri Narendra Modi.
Quoting Telugu poet and playwright Shri Gurajada Appa Rao’s famous saying, ‘A country is not just its soil; a country is its people.’ – the Finance Minister presented the Union Budget 2025-26 with the theme “Sabka Vikas” stimulating balanced growth of all regions.
In line with this theme, the Finance Minister outlined the broad Principles of Viksit Bharat to encompass the following:
- Zero-poverty.
- Hundred per cent good quality school education.
- Access to high-quality, affordable, and comprehensive healthcare.
- Hundred per cent skilled labour with meaningful employment.
- Seventy per cent women in economic activities; and
- Farmers making our country the ‘food basket of the world’.
- The total receipts other than borrowings and the total expenditure are estimated at ₹34.96 lakh crore and ₹50.65 lakh crore respectively.
- The net tax receipts are estimated at ₹28.37 lakh crore.
- The fiscal deficit is estimated to be 4.4 per cent of GDP.
- The gross market borrowings are estimated at ₹14.82 lakh crore.
- Capex Expenditure of ₹11.21 lakh crore (3.1% of GDP) earmarked in FY2025-26.
- Prime Minister Dhan-Dhaanya Krishi Yojana – Developing Agri Districts Programme
- Building Rural Prosperity and Resilience
- Aatmanirbharta in Pulses
- Comprehensive Programme for Vegetables & Fruits
- Makhana Board in Bihar
- National Mission on High Yielding Seeds
- Fisheries
- Mission for Cotton Productivity
- Enhanced Credit through KCC
- Urea Plant in Assam
- Revision in classification criteria for MSMEs
- Credit Cards for Micro Enterprises
- Fund of Funds for Startups
- Scheme for First-time Entrepreneurs
- Focus Product Scheme for Footwear & Leather Sectors
- Measures for the Toy Sector
- Support for Food Processing
- Manufacturing Mission – Furthering “Make in India”
- Investing in People
- Investing in the Economy
- Investment in Research and Innovation: Paving the Way for Future Growth
- The Union Budget 2025 places a strong emphasis on research, development, and innovation as catalysts for long-term economic growth. An allocation of ₹20,000 crore has been earmarked for a private sector-driven research and development initiative. This investment is expected to spur innovation across various industries, enhancing competitiveness and positioning India as a global hub for technological advancements.
- indiabudget.gov.in
- To nurture talent and encourage cutting-edge research, the budget introduces the Prime Minister Research Fellowship, offering ten thousand fellowships for technological research in premier institutions such as the Indian Institutes of Technology (IITs) and the Indian Institute of Science (IISc). This initiative aims to retain top talent within the country and foster a culture of innovation and scientific inquiry.
- indiabudget.gov.in
- In a bid to safeguard biodiversity and ensure food security, the government has announced the establishment of a second Gene Bank for crops germplasm, housing 10 lakh germplasm lines. This facility will serve as a repository of genetic material, supporting crop improvement programs and resilience against climate change.
- indiabudget.gov.in
- Export Promotion and Manufacturing: Enhancing Global Competitiveness
- The budget outlines several measures aimed at boosting exports and strengthening the manufacturing sector. To incentivize the production of electronics and electric vehicles (EVs), exemptions have been granted on customs duties for components such as open cells used in LED/LCD TVs and capital goods required for lithium-ion battery manufacturing. These incentives are designed to reduce production costs, making Indian-made products more competitive in the global market.
- indiabudget.gov.in
- The maintenance, repair, and overhaul (MRO) sector receives a significant boost with a 10-year exemption on goods used for shipbuilding and ship-breaking activities. This move is expected to attract investments, generate employment, and position India as a key player in the global maritime industry. Additionally, the extension of time limits for the export of railway goods imported for repairs aims to streamline operations and enhance efficiency in the logistics sector.
- indiabudget.gov.in
- In a strategic effort to promote the leather industry, the budget fully exempts wet blue leather from basic customs duties. This exemption is anticipated to boost domestic consumption and elevate exports, thereby supporting small and medium enterprises (SMEs) and generating employment opportunities in the sector.
- indiabudget.gov.in
- Social Sector Expenditure: Fostering Inclusive Development
- The Union Budget 2025 demonstrates a commitment to inclusive development through increased allocations to the social sector. Recognizing the challenges posed by unemployment and the need for skill development, the government has unveiled a comprehensive package of five schemes with an outlay of ₹2 lakh crore. These schemes aim to facilitate employment, provide skilling opportunities, and create avenues for 4.1 crore youth over the next five years. This initiative is expected to equip the workforce with the necessary skills to thrive in a rapidly evolving job market.
Government Borrowing Plans
Preliminary estimates suggest that the government may increase borrowing to fund ambitious projects under the National Infrastructure Pipeline (NIP) and other flagship programs. In FY2024, the gross borrowing target stood at ₹15.43 lakh crore, and any upward revision in FY2025 could lead to increased debt issuance. This would have a dual impact: while it might temporarily pressure yields upward, it could also stimulate economic activity if funds are channeled into growth-centric initiatives.
Other sectors
- Renewable energy: Solar, wind, and EV sectors are expected to thrive
- Automobiles: Boosted consumer spending on vehicles is expected
- Defense: Defense expenditure is expected to increase to procure defense equipment, aircrafts, and aero engines
- Railways: The budget may include measures to boost capex to improve safety systems and rolling stocks
- Banking: Banks may benefit from increased credit adoption
- Microfinance: Microfinance companies may benefit from enhanced credit guarantees for MSMEs
Looking Ahead
The Union Budget 2025 promises to play a pivotal role in steering India’s economic trajectory, with implications for fiscal health, sectoral growth, and market stability. By staying informed, adapting swiftly to new policies, and aligning strategies with national economic goals, businesses and investors can navigate the post-budget environment effectively and capitalize on emerging opportunities.
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