"Union Budget 2025-26
On February 1, 2025, Finance Minister Nirmala Sitharaman presented the Union Budget for the fiscal year 2025-26, outlining a comprehensive strategy to stimulate economic growth, provide tax relief to the middle class, and bolster various sectors of the economy.
1. Personal Income Tax Reforms: In a significant move to enhance disposable income and boost consumption, the government has raised the income tax exemption threshold to ₹12 lakh per annum, up from the previous ₹7 lakh. Additionally, tax rates for incomes above this threshold have been reduced. This initiative is expected to result in an annual revenue loss of approximately ₹1 lakh crore but aims to invigorate middle-class spending and savings.
The new tax regime introduces the following slabs:
Income up to ₹4,00,000: No Tax
₹4,00,001 to ₹8,00,000: 5%
₹8,00,001 to ₹12,00,000: 10%
₹12,00,001 to ₹16,00,000: 15%
₹16,00,001 to ₹20,00,000: 20%
₹20,00,001 to ₹24,00,000: 25%
Above ₹24,00,000: 30%
For salaried individuals, a standard deduction of ₹75,000 is available under the new regime. Therefore, a salaried taxpayer will not be required to pay any tax where their income before standard deduction is less than or equal to ₹12,75,000.
2. Agricultural Initiatives: To strengthen the agricultural sector, the budget introduces a six-year program focused on increasing the production of pulses and cotton, aiming to reduce import dependence. The program includes state agencies purchasing pulses at guaranteed prices to support farmers. Furthermore, a national mission will be launched to develop high-yielding seed varieties, addressing challenges such as shrinking farmlands and erratic weather patterns.
3. Support for Farmers: The government has increased the subsidized farm loan limit to ₹5 lakh from the previous ₹3 lakh, providing greater financial support to farmers. This measure aims to enhance agricultural productivity and farmer welfare.
4. Manufacturing and Export Promotion: A renewed focus has been placed on boosting manufacturing and exports. The government plans to launch dedicated missions to promote these sectors, although specific details are awaited. Historically, the share of manufacturing in India's economy has remained around 17%, underscoring the need for effective implementation of these initiatives.
5. Fiscal Management: The budget sets a target to reduce the fiscal deficit to 4.4% of GDP in 2025-26, down from a revised 4.8% in the current year. To fund the fiscal deficit, the government plans to borrow ₹14.82 lakh crore from the bond markets.
6. Infrastructure Development: Capital expenditure is set to increase modestly, with an allocation of ₹11.21 lakh crore for 2025-26, compared to ₹10.18 lakh crore in the current year. This investment aims to develop infrastructure projects across the country, supporting long-term economic growth.
7. Social Welfare and Subsidies: Allocations for food, fertilizer, and rural employment subsidies remain nearly flat at ₹4.57 lakh crore. The budget for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is maintained at ₹86,000 crore, continuing the government's commitment to rural employment.
Expert Insights: While the tax reforms are anticipated to boost consumer demand, some analysts express caution. Moody's Ratings, for instance, suggests that the tax relief may not significantly enhance economic growth, maintaining India's growth forecast at 6.6% for the next fiscal year. They emphasize that capital expenditure on infrastructure tends to provide a more sustainable boost compared to tax cuts.
In summary, the Union Budget 2025-26 presents a balanced approach, aiming to stimulate economic growth through tax reliefs, support for agriculture, and infrastructure development, while maintaining fiscal prudence. The effectiveness of these measures will depend on their implementation and the response from various sectors of the economy.|
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