New Delhi: Finance Minister Nirmala Sitharaman’s Union Budget for 2025-26 introduced massive reforms to the new income tax regime. She announced that individuals earning up to Rs 12 lakh will now be completely exempt from paying tax, which is a move aimed at relieving the tax burden on the middle class and driving increased consumer spending.
In line with this focus, tax slabs for other income groups were revised, making the tax system more progressive and less complex. Moreover, the Finance Minister also launched several incentives to boost agriculture and businesses to promote job creation, especially in emerging sectors like green energy and technology.
“Key initiatives include transformative reforms in taxation, financial services, power, and urban development, alongside major support for agriculture, MSMEs, and manufacturing. The enhanced push for research, AI, and infrastructure, coupled with tax benefits for the middle class, signals a growth-oriented and future-ready economic roadmap,” Ajit Mishra SVP-Research,Religare Broking Limited.
Key highlights of the 2025 Budget:
Capex
FY25 revised capex at ₹10.18 lakh crore
Income Tax
New Income Tax Bill will be announced next week. No Income Tax payable up to ₹12 Lakh under new regime. Tax slabs will be changed across board. Salaried class with salary over ₹24 lakh will pay 30 percent tax. Tax return filing limit will also be increased to 4 years from 2 years.
• Tax threshold on interest for senior citizens increased to ₹1 lakh
• TDS on rent increased to ₹6 lakh from ₹2.4 lakh
• Remove TCS (Tax Collected at Source) on remittances for education purposes if the remittance is funded through a loan taken from a specified financial institution.
• Provision of higher TDS (Tax deducted on source) only in non-PAN cases
• Additionally, the threshold for TCS on remittances under the RBI’s Liberalized Remittance Scheme (LRS) has been increased from ₹7 lakh to ₹10 lakh.
Big boost to farmers
The Finance Minister announced the PM Dhan Dhanya Krishi Yojana, targeting 100 districts with low yields, moderate crop intensity, and below-average credit access. The scheme aims to benefit 1.7 crore farmers by improving agricultural productivity through crop diversification, better irrigation, and enhanced storage facilities.
The Finance Minister highlighted agriculture as a key priority in Budget 2025, unveiling a new initiative under the Prime Minister Krishi Yojana. The Han Dhanya Krishi Yojana initiative will focus on 100 districts with low productivity, moderate crop intensity, and below-average credit access. It aims include — crop diversification, augmenting storage, improving irrigation, and facilitating long and short-term credit for farmers. An estimated 1.7 crore farmers are expected to benefit from these measures.
The Finance Minister also announced that the government will launch a 6-year mission aimed at achieving self-reliance in pulses, with a special focus on tur and masoor. Makhana Board will also be established in Bihar. As part of the National Mission for Edible Oil & Seeds, the program also aims to strengthen domestic production and reduce dependence on imports.
Kisan Credit Cards
The Finance Minister stated that Kisan Credit Cards (KCC) will continue to support 7.7 crore farmers, fishermen, and dairy farmers with short-term credit access. Additionally, under the revised interest subvention scheme, the loan limit for KCC-backed borrowing will be raised from ₹3,000 to ₹5,000, offering enhanced financial support for agricultural activities.
Cess and Tariffs
The government plans to simplify and streamline the customs tariff structure to address duty inversion and promote domestic manufacturing, value addition, and exports. This rationalization is part of a comprehensive review of the customs rate structure announced in the July 2024 Budget.
In addition to the seven tariff rates removed in the 2023-24 Budget, seven more rates will be eliminated, leaving only eight remaining, including a zero rate. While duty incidents will largely be maintained, a few items will see marginal reductions. The government also proposes to levy no more than one cess or surcharge and will exempt the social welfare surcharge on 82 tariff lines.
• The FM proposed full exemption of Basic Customs Duty (BCD) on cobalt powder and lithium-ion battery waste, scrap, and 12 other critical minerals.
• 37 new medicines and 13 new patient assistance programs will be included in the exemption list.
• Six life-saving medicines will be added to a list with a concessional customs duty of 5%.
• Fully extend BCD on wet blue leather. Exempt crust leather from 20% duty
• Reduce BCD from 30% to 5% on frozen fish paste. Reduce BCD from 15% to 5% fish hydrolycates.
• BCD on interactive flat panel displays from 10% to 20% and reduce the BCD on open cell and other components for LCDs and LEDs to 5%.
Financial Reforms
• FDI in insurance for firms which invest entire premium in India raise from 74 percent to 100 percent.
• The Finance Minister announced the rollout of a revamped central KYC registry, emphasizing the need for regulations to evolve in line with technological innovations and the global regulatory landscape.
• The government will ensure faster approvals for company mergers and expand the scope of related regulations. Demonstrating its strong commitment to improving the ease of doing business, the government plans to develop a modern, people-friendly, and trust-based regulatory framework.
• Sitharaman revealed that an Investment Friendliness Index for states will be introduced in 2025 to encourage competitive cooperative federalism. Additionally, under the Financial Stability and Development Council (FSDC), a mechanism will be set up to evaluate the impact of current financial regulations and subsidiary instructions, with the goal of boosting the responsiveness and growth of the financial sector.
Infrastructure
The Finance Minister unveiled the creation of a ₹1 lakh crore Urban Challenge Fund to transform cities into growth hubs, support innovative redevelopment, and improve water and sanitation infrastructure, as highlighted in the July Budget. The fund will cover up to 25 percent of the cost for bankable projects, with a stipulation that at least 50 percent of the funding comes from bonds, bank loans, or public-private partnerships (PPPs). Each infrastructure ministry will present a three-year list of Public-Private Partnership (PPP) projects, with a focus on three PPP proposals per ministry. An initial ₹10,000 crore has been proposed for the fiscal year 2025-26 to launch the initiative.
Capex: Additionally, the government will provide ₹1.5 lakh crore in interest-free loans for capital expenditure and offer incentives to encourage reforms.
Affordable Housing: Another 40,000 units to be completed in FY26, announces Finance Minister. SWAMI Fund 2 will be established of ₹15,000 crore
Nuclear Energy
The Finance Minister introduced a Nuclear Energy Mission to accelerate India’s shift towards clean energy, aiming to develop at least 100 GW of nuclear power by 2047. To encourage private sector involvement, amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act will be made. Furthermore, a dedicated ₹20,000 crore research and development initiative for Small Modular Reactors (SMRs) will be launched, with the goal of having at least five indigenously developed SMRs operational by 2033.
MSMEs
The Finance Minister highlighted that MSMEs are the second engine of growth in India, accounting for 45 percent of the country’s exports. To further support their development, the Finance Minister has introduced customized credit cards for MSMEs, a fund of funds for startups, and an expanded fund-of-funds (f-o-f) with a wider scope, all designed to improve capital access. Additionally, the government will enhance the investment and turnover limits for MSMEs, increasing them by 2.5 times and 2 times, respectively, to boost their growth and operational efficiency.
Leather and Footwear
The Finance Minister announced measures to enhance productivity, quality, and competitiveness in India’s footwear and leather sector. A new scheme will support design, component manufacturing, and machinery for non-leather footwear, alongside leather footwear. This initiative is expected to create 22 lakh jobs, generate ₹400 crore, and boost exports to over ₹1.1 lakh crore. Additionally, the toy sector will see a new scheme aimed at establishing India as a global hub for toys, focusing on developing clusters, skills, and a sustainable manufacturing ecosystem for high-quality, innovative toys.
Investing in people
The Finance Minister emphasized investment as the third engine of growth, focusing on people, the economy, and innovation. As part of this, the government is prioritizing the Sashakt Anganwadi and Poshan 2.0 programs, providing nutritional support to over 8 crore children, pregnant women, lactating mothers, and around 20 lakh adolescent girls in aspirational districts and the Northeast, with enhanced cost norms to boost their effectiveness. Additionally, infrastructure will be expanded in 5 IITs established after 2014 to accommodate 6,500 more students, and 5 National Centres of Excellence for skilling will be set up. The government also plans to issue identity cards and register gig workers on the e-Shram portal, aiming to assist 1 crore workers.
Power
The Finance Minister outlined significant power sector reforms focused on improving electricity distribution and transmission. The government will incentivize states to implement reforms in electricity distribution and boost intrastate transmission capacity, aiming to enhance the financial health and operational efficiency of power companies. To assist states in these efforts, an additional borrowing allowance of 0.5 percent of GSDP will be provided, based on their progress in implementing these reforms.
Aviation
The UDAN scheme has connected 1.5 crore middle-class people to 88 airports through 619 routes. A modified version of UDAN will be launched, expanding to 120 new destinations, with the aim of accommodating an additional 4 crore passengers. Greenfield airports will also be developed in Bihar to further enhance connectivity.
Key Figures
Revised fiscal deficit for FY25: 4.8%
Fiscal deficit target for FY26: 4.4%
For 2024-25, the revised estimate for total receipts (excluding borrowings) stands at ₹31.47 lakh crore, with net tax receipts at ₹25.57 lakh crore.
The revised estimate for total expenditure is ₹47.16 lakh crore, including a capital expenditure of ₹10.1 lakh crore.
Items that got cheaper
The government has proposed exemptions and reductions in Basic Customs Duty (BCD) to make several essential products more affordable, especially in the healthcare and manufacturing sectors.
Exemption for Lifesaving Drugs and Medicines
• 36 Cancer and Rare Disease Drugs: The Union Budget 2025 proposes to exempt 36 drugs used in cancer treatment and for rare diseases from Basic Customs Duty. This measure is expected to reduce the financial burden on patients and improve access to life-saving medicines.
• 37 More Medicines Exempted: An additional 37 medicines will also be exempt from BCD, providing further relief to the healthcare sector. These exemptions are in line with the government’s efforts to ensure affordable healthcare for all.
Support for the Manufacturing Sector
• Critical Minerals Exemption: The government has proposed to fully exempt cobalt products, LEDs, zinc, lithium-ion battery scrap, and 12 other critical minerals from Basic Customs Duty. This exemption aims to reduce the cost of raw materials essential for manufacturing industries like electronics and battery production.
• Shipbuilding Raw Materials: Raw materials for manufacturing ships will be exempted from BCD for the next 10 years, encouraging growth in the maritime sector and facilitating the ‘Make in India’ initiative.
Promotion of Handicraft Exports
To further support the export of handicrafts, the government has announced a scheme to promote these exports, making handicrafts more competitive in the global market.
Exemption for Leather Products
• Wet Blue Leather: The government will fully exempt wet blue leather from Basic Customs Duty, helping the leather industry by reducing input costs for manufacturers.
Fish Pasteurii
The customs duty on fish pasteurii will be reduced from 30% to 5%, making it more affordable for processing and distribution, benefiting the food and agriculture sectors.
Items that got costlier
While many essential items will see a reduction or exemption in customs duties, some goods are set to become costlier, particularly in the tech and manufacturing sectors.
Increase in Customs Duty on Interactive Flat Panel Displays
The government has proposed increasing the Basic Customs Duty on interactive flat-panel displays from 10% to 20%. This measure aims to address the inverted duty structure and level the playing field for domestic manufacturers of such products.
Provisional Assessment Time Limit
The government has introduced a time limit of two years for provisional assessments, which will ensure quicker and more efficient customs clearance for businesses. This change will impact certain industries dealing with imports and exports, making the process more transparent and predictable.
Other Changes in Tariff Structure
• Rationalization of Tariff Rates: The Budget also proposes the removal of seven tariff rates, in addition to the seven rates removed in the 2023-24 Budget. This rationalization is part of the ongoing effort to streamline the customs tariff structure and make trade more efficient.
• Social Welfare Surcharge Exemption: The Social Welfare Surcharge will be exempted on 82 tariff lines that are subject to a cess, reducing the overall tax burden on businesses and industries that deal with these goods.
Impact on the market
The proposed changes are expected to have a significant impact on various sectors. Exemptions on medicines and raw materials will lower costs in the healthcare and manufacturing industries, particularly in shipbuilding and electronics. The introduction of a scheme to promote handicraft exports is a positive step towards supporting India’s traditional industries.
However, the increase in customs duties on interactive flat-panel displays could lead to higher prices for certain technological products, which may affect both businesses and consumers in the tech space.
The Union Budget 2025 presents a mixed bag of customs duty changes. On one hand, it aims to reduce the cost of essential goods like medicines and raw materials, while on the other, it seeks to correct the inverted duty structure in certain sectors. The changes to the customs tariff structure are in line with the government’s broader objective of making India a more competitive and self-reliant economy, supporting both manufacturing and export growth.
Finance Minister says Budget aims at ‘transformative’ reforms in 6 areas including Taxation, financial sector, power sector, urban development, mining, regulatory reforms. These domains remain central to the government’s agenda, aiming to stimulate economic expansion, enhance infrastructure, improve governance, and promote sustainable development across multiple sectors.
“Together, we aim to unlock India’s potential under the visionary leadership of Prime Minister Modi,” said the Finance Minister as she began her address. “This budget is dedicated to accelerating growth, driven by our aspirations for a ‘Viksit Bharat.’ Our economy remains the fastest growing among all major economies. The Budget 2025-26 continues our government’s efforts to secure inclusive development, uplift household sentiment and enhance the power of India’s middle class,” she added.
PM tells Sitharaman everyone is praising her:
After Nirmala Sitharaman presented the Union Budget 2025-26, Prime Minister Narendra Modi walked up to the table where the Finance Minister was sitting, sources said. Congratulating Sitharaman for presenting a “good” budget, PM Modi said everyone was praising her, they added.