Finance Minister Nirmala Sitharaman presented the 2025 Budget, focusing on relief for the middle-class and strategic reforms aimed at economic growth. While hailed for tax relief, it faces opposition criticism over its long-term impact and missed opportunities. A report by CA Sumiti Gaba
Union Finance Minister Nirmala Sitharaman unveiled the progressive Budget 2025 on February 1, 2025, focusing on the middle class, showcasing the government’s strategic focus on fiscal consolidation, economic growth, and comprehensive structural reforms. However, the budget was criticized by the opposition parties. The 2025 Budget, introduced by the Modi 3.0 government, is an inclusive plan designed to unlock India’s full potential and propel the nation towards becoming a “Viksit Bharat.” It envisions a nation free from poverty, with 100 percent access to quality education, meaningful employment opportunities, high-quality healthcare, a women labour force participation rate reaching 70 percent, and the empowerment of farmers.
The Budget emphasizes accelerating economic growth, advancing infrastructure, fostering inclusive development, strengthening private sector investments, boosting household confidence, and enhancing the spending power of the middle class to drive consumption. The Budget strategically focuses on four key engines of growth—agriculture, MSMEs, investment and exports—while also enacting transformative reforms across six critical sectors, including taxation, the power sector, urban development, mining, the financial sector, and regulatory reforms.
The Finance Minister announced the introduction of a new Income Tax Bill under Budget 2025, aimed at simplifying the existing Income Tax Act. The proposed bill intends to reduce tax disputes and offer greater certainty to taxpayers, paving the way for a more transparent and predictable tax environment.
A significant focus of the Budget is on providing relief to middle-class taxpayers. The finance minister proposed a substantial enhancement in the tax rebate under the New Tax Regime. Taxpayers earning up to Rs 12 lakh (Rs 12.75 lakh for salaried individuals) will now be exempt from paying any income tax. This move is expected to increase disposable income, which will likely stimulate household consumption, savings, and investment, providing a boost to the economy. Additionally, the Budget brings in a rationalization of the tax slabs under the new tax regime. The basic tax slab has been raised from Rs 3 lakh to Rs 4 lakh, while the peak tax rate of 30% will now be applicable to incomes above Rs 24 lakh, up from the previous threshold of Rs 15 lakh. These revisions are expected to create more liquidity and promote economic activity. The budget also seeks to simplify the tax compliance process. A number of measures were proposed to rationalize the TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) regime, including an increase in the threshold limits for TDS applicability across various categories of transactions. Additionally, the decriminalization of TCS defaults and the omission of TCS on the sale of specified goods are set to streamline the tax system.
In another important development, the Budget proposes a new framework for determining the arm’s length price for a block period of three years, addressing concerns in transfer pricing. The expansion of safe harbour provisions is expected to reduce transfer pricing disputes and provide more certainty for multinational corporations (MNCs) operating in India.
The government has unveiled several initiatives aimed at increasing voluntary tax compliance. These include extending the time limit to file updated tax returns for up to four years. Furthermore, the Budget extends the tax holiday for eligible start-ups by an additional five years to continue fostering innovation and entrepreneurship in the country. On top of that, anti-abuse provisions have been introduced to prevent the ever-greening of losses in the case of amalgamation, while measures to facilitate faster mergers are also part of the reforms.
The Budget introduces new compliance obligations related to crypto assets, signalling the government’s intent to address the growing digital economy. In addition, the Budget provides relief on basic customs duties for essential items such as prescribed drugs, medicines, and critical minerals. A significant reform in the Budget aims to enhance the attractiveness of the International Financial Services Centre (IFSC) in GIFT City, with amendments designed to make the financial hub more appealing to global investors. The government has also extended the sunset date for investments made by Sovereign Wealth Funds and Pension Funds until March 31, 2030, encouraging continued long-term investment in India’s infrastructure and growth.
A significant focus has been made in the agriculture sector, introducing several key initiatives aimed at enhancing productivity and supporting farmers. The government has launched the Prime Minister Dhan-Dhaanya Krishi Yojna, a comprehensive Agri District program that will cover 100 districts and benefit 1.7 million farmers. A mission to boost cotton productivity has also been introduced, along with efforts to further improve the production and processing of Makhana in Bihar. Additionally, the budget seeks to expand the reach of Kisan Credit Cards to 7.7 crore farmers and fishermen, with an increased loan limit of 5 lakh. To ensure long-term growth, the government will also promote the use of high-yielding seeds, reinforcing its commitment to strengthening the agricultural landscape.
The government has pioneered several initiatives to support the MSME sector, aiming to foster growth and entrepreneurship. A new credit card scheme has been launched for micro enterprises, providing a credit limit of 5 lakh for businesses registered on the Udyam portal. Additionally, the government will offer term loans of up to 2 crore for 5 lakh first-time entrepreneurs over the next five years, helping to fuel innovation and business expansion. To further boost employment, special focus will be given to labour-intensive sectors such as footwear and leather, the toy industry, and food processing, creating more job opportunities and promoting sustainable sectoral growth.
The government is prioritizing investment in education to foster curiosity and innovation. Over the next five years, 50,000 Atal Tinkering Labs will be established in government schools, along with broadband connectivity for all government secondary schools. The Bharatiya Bhasha Pustak Scheme will provide digital books in Indian languages to promote a learning attitude among students. To enhance skill development, five National Centres of Excellence will be set up in collaboration with global partners. IIT Patna’s infrastructure will be improved, including hostel rejuvenation. A Centre of Excellence in AI for education, with a budget of Rs 500 crore, will be established to personalize learning experiences. Additionally, 10,000 new seats will be created in medical colleges and hospitals to expand access to medical education. The government is also strengthening healthcare by expanding broadband connectivity to primary health centres in rural areas under the Bharat Net project. To improve cancer care, 200 daycare cancer centres will be established in district hospitals. Recognizing their significant contribution to the new-age services economy, nearly 1 crore gig workers on online platforms will gain access to healthcare benefits under the PM Jan Arogya Yojana, supported by the issuance of identity cards and registration on the e-Shram portal to streamline access to various welfare schemes. Additionally, the government is investing in innovation to drive future growth with a Rs 20,000 crore allocation for private sector-led research, development, and innovation.
In a recent discussion with a former professor from Punjab University’s Department of Economics, we gained valuable insights into the newly presented Budget 2025. The professor highlighted the budget’s key focus areas, particularly its approach to income tax reforms and their potential impact on the economy. The proposed changes, she explained, are designed to boost consumption by putting more disposable income in the hands of middle-income taxpayers, especially salaried individuals. This, in turn, is expected to stimulate demand for consumer goods and durables, helping revive economic activity in sectors like FMCG. However, she cautioned that boosting consumption alone might not suffice for long-term growth. While increasing disposable income is crucial, the professor pointed out a significant reduction in capital expenditure, particularly in infrastructure, which could hinder the broader growth of the economy. “The economy cannot be boosted by consumption alone,” she remarked, emphasizing that infrastructure development is essential for sustainable growth.
The professor also expressed concern over the agricultural sector, noting that despite the ongoing struggles faced by farmers, the budget shows a reduction in allocations for agriculture. “Instead of addressing the farmers’ needs, the government has reduced support to agriculture,” she said, highlighting the risks of ignoring the challenges in this crucial area.
“We need to do more than what is being done in the budget,” she stated, suggesting that the current policies fall short of the comprehensive measures needed to address these challenges.
Opposition parties have criticized the Modi government’s first full Budget of its third term, calling it lacking in “new ideas” and failing to show the “will to reach beyond its grasp.” Former union finance minister and senior Congress leader P. Chidambaram expressed concerns that the Budget would only lead the slowing economy to “trudge along on the old path,” predicting a growth rate of 6% to 6.5% for 2025-26, far from the 8% growth target estimated by Chief Economic Advisor V. Anantha Nageswaran, which he argued is necessary for India to become a developed country. Chidambaram also pointed out that the Budget seemed focused on appealing to the 3.2 crore middle-class taxpayers and the 7.65 crore electorate in Bihar, ahead of the upcoming Assembly elections in October-November. Meanwhile, Leader of the Opposition in the Lok Sabha, Rahul Gandhi, dismissed the Budget as “a band-aid for bullet wounds,” criticizing the government for failing to bring about the paradigm shift needed to address India’s economic challenges amidst global uncertainty. While the government’s Budget may have offered a few band-aids, the opposition believes it’s far from the cure needed to heal the economy’s wounds.
