On February 1, Finance Minister Nirmala Sitharaman presented the first comprehensive Union Budget of Prime Minister Narendra Modi’s third term, marking her record eighth consecutive presentation, which lasted 1 hour and 17 minutes. She is now closer to the milestone of ten Budget presentations set by Morarji Desai. The 2025 Union Budget comes at a critical time as India’s economic growth has slowed to a four-year low due to global uncertainties. It aims to enhance economic resilience through tax relief, infrastructure development, and sector-specific reforms. Key measures include significant income tax cuts, increased exemptions, and new incentives for startups and MSMEs. Individuals earning up to Rs 12 lakh annually will be exempt from income tax, while those earning Rs 25 lakh will see a reduction of Rs 1.1 lakh. However, these changes may lead to a loss of Rs 1 lakh crore in direct tax revenue and Rs 2,600 crore in indirect tax revenue. The revised tax slabs include no tax for incomes up to Rs 4 lakh, a 5% rate for Rs 4 lakh to Rs 8 lakh, and a 30% rate for incomes over Rs 24 lakh, aiming to ease the financial burden on middle-class taxpayers and simplify compliance.
The threshold for Tax Collected at Source (TCS) on remittances under the Liberalized Remittance Scheme (LRS) has been increased from Rs 7 lakh to Rs 10 lakh, providing greater flexibility for individuals making overseas transfers. Additionally, the TDS threshold for rental income has been elevated to Rs 6 lakh, offering significant relief to both individuals and businesses engaged in rental activities. Furthermore, the proposal includes the elimination of TCS on education loans up to Rs 10 lakh from designated financial institutions, thereby simplifying the financial burden for students and their families. Moreover, the government has decriminalized the delayed payment of TCS, ensuring that such delays will no longer be classified as a criminal offense. Taxpayers will also benefit from an extended timeframe for filing updated tax returns, which has been increased from two years to four years. In terms of property valuation, taxpayers are now permitted to declare the value of two self-occupied properties as nil, which can lead to tax savings. The scope of safe harbor rules is set to be broadened to mitigate international tax disputes, while startups will enjoy an extended period of five years for incorporation to qualify for tax benefits. These reforms collectively aim to enhance the tax landscape and provide relief to middle-class taxpayers.
