Summary of Union Budget 2025-26 (II)

Feb. 2, 2025

Why in news?

Union Minister for Finance and Corporate Affairs Smt Nirmala Sitharaman presented Union Budget 2025-26 in the Parliament.

What’s in today’s article?

Budget 2025-26: Reforms as the Fuel of growth
Financial Sector Reforms and Development as outlined in Union Budget 2025-26
Union Budget 2025-26: Fiscal Consolidation
Other highlights of the Union Budget 2025-26

Budget 2025-26: Reforms as the Fuel of growth

Over the past 10 years, the government has implemented key taxpayer-friendly reforms, including:
- Faceless assessment; Taxpayers' charter; Faster refunds
- 99% returns on self-assessment
- Vivad se Vishwas scheme for dispute resolution
Reaffirming commitment to “Trust First, Scrutinize Later”, the Finance Minister emphasized continued tax reforms to enhance convenience for taxpayers.

Financial Sector Reforms and Development as outlined in Union Budget 2025-26

The Union Budget 2025-26 introduced key reforms to improve compliance, attract investments, and build a strong regulatory environment:
- FDI Limit in Insurance: Raised from 74% to 100% for companies investing the entire premium in India.
- Light-Touch Regulatory Framework: Focus on trust-based governance to boost productivity and employment.
Key Measures for a Modern Regulatory System
- High-Level Committee for Regulatory Reforms
  - Review non-financial sector regulations, licenses, and permissions.
  - Strengthen trust-based governance and ease of compliance.
  - Provide recommendations within one year.
- Investment Friendliness Index of States
  - Launched in 2025 to promote competitive cooperative federalism.
- Financial Stability and Development Council (FSDC) Mechanism
  - Assess impact of financial regulations.
  - Enhance financial sector responsiveness and development.
- Jan Vishwas Bill 2.0
  - Decriminalize 100+ provisions in various laws to improve ease of doing business.

Union Budget 2025-26: Fiscal Consolidation

The Union Budget 2025-26 reaffirms the Government's commitment to fiscal discipline by ensuring that the fiscal deficit remains on a declining trajectory and Central Government debt stays sustainable.
Fiscal Deficit Targets
- Revised Estimate (RE) 2024-25: 4.8% of GDP
- Budget Estimate (BE) 2025-26: 4.4% of GDP
Revised Estimates (2024-25)
- Total Receipts (excluding borrowings): ₹31.47 lakh crore
- Net Tax Receipts: ₹25.57 lakh crore
- Total Expenditure: ₹47.16 lakh crore
- Capital Expenditure: ₹10.18 lakh crore
Budget Estimates (2025-26)
- Total Receipts (excluding borrowings): ₹34.96 lakh crore
- Net Tax Receipts: ₹28.37 lakh crore
- Total Expenditure: ₹50.65 lakh crore

Other highlights of the Union Budget 2025-26

Reposing faith on middle class in nation building, the Union Budget 2025-26 proposes new direct tax slabs and rates under the new income tax regime.
Middle-Class Tax Relief & Personal Income Tax Reforms
- No Income Tax on total income up to ₹12 lakh per annum under the new tax regime.
- Salaried individuals earning up to ₹12.75 lakh per annum will pay NIL tax after a ₹75,000 standard deduction.
- Estimated revenue loss of ₹1 lakh crore due to new tax structure.
TDS/TCS Rationalization:
- Senior citizens' tax deduction limit on interest doubled from ₹50,000 to ₹1 lakh.
- TDS threshold on rent raised from ₹2.4 lakh to ₹6 lakh per annum.
- TCS collection threshold increased to ₹10 lakh.
- Delay in TCS payments decriminalized (following TDS decriminalization).
Compliance Ease & Incentives:
- Updated return filing period extended from 2 years to 4 years.
- Registration period for small charitable trusts increased from 5 to 10 years.
- Annual value of two self-occupied properties can be claimed as NIL without conditions.
- National Savings Scheme withdrawals (post-Aug 29, 2024) & NPS Vatsalya accounts exempted from tax.
Ease of Doing Business & Investment Promotion
- New Scheme for International Transactions: Arm’s length pricing for a block period of 3 years to ensure tax certainty.
- Presumptive Taxation for Non-Residents: Applicable to those offering services to electronics manufacturing companies in India.
Tonnage Tax Benefits Extended to inland vessels.
- Startup Incentives: Incorporation period extended by 5 years.
- Infrastructure Investment Boost: Sovereign Wealth and Pension Fund investment deadline extended to March 31, 2030.
Customs Reforms & Trade Promotion
- Industrial Tariff Rationalization:
  - Removal of seven tariffs and introduction of a single cess/surcharge per category.
- Healthcare & Essential Medicines:
  - 36 life-saving drugs for cancer, rare, and chronic diseases fully exempted from Basic Customs Duty (BCD).
  - 37 more medicines & 13 Patient Assistance Program drugs also exempted.
Boost for Domestic Manufacturing:

25 critical minerals (cobalt powder, lithium-ion battery waste, lead, zinc, etc.) fully exempted from BCD.

Textile Sector Support:
- Two more shuttle-less looms fully exempted.
- BCD on knitted fabrics increased to 20% or ₹115/kg (whichever is higher).
Electronics & Make in India:
- BCD on Interactive Flat Panel Displays (IFPDs) raised to 20%.
- BCD on Open Cells reduced to 5%; parts of Open Cells fully exempted.
- Lithium-ion battery manufacturing: 35 capital goods for EVs & 28 for mobile batteries added to exemption list.
Shipbuilding Industry: BCD exemption on raw materials extended for 10 more years.
Export Promotion Measures: Handicrafts exports facilitated with BCD exemptions.
Leather Industry Support: BCD fully exempted on Wet Blue leather to boost value addition and employment.
Fisheries Export Support:
- BCD on Frozen Fish Paste reduced from 30% to 5%.
- BCD on Fish Hydrolysate for shrimp/fish feeds reduced from 15% to 5%.
Vision for Viksit Bharat
- Finance Minister Nirmala Sitharaman highlighted Democracy, Demography, and Demand as key pillars of India's growth.
- The new tax regime aims to boost consumption, savings, and investment by putting more money into the hands of the middle class, strengthening India's economic trajectory.