Published On : Sat, Feb 1st, 2025
By Nagpur Today Nagpur News

Sitharaman turns middle class hero with tax cuts, reforms

Individuals earning up to ₹12.75 lakh annually will now be exempt from taxes, following an increase in the exemption threshold from ₹7 lakh. Additionally, revised tax slabs for higher earners will enable individuals with incomes up to ₹25 lakh to save up to ₹1.1 lakh in taxes.

The tax cuts, expected to cost the exchequer around ₹1 lakh crore, will benefit 6.3 crore taxpayers—more than 80% of those earning up to ₹12 lakh annually.

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Presenting the budget in Lok Sabha, Finance Minister Nirmala Sitharaman described the new tax structure as a significant relief for the middle class, enhancing disposable income and stimulating household consumption, savings, and investment.

For FY26 (April 2025–March 2026), the government has proposed increasing the foreign investment limit in the insurance sector from 74% to 100%, alongside continued infrastructure spending and higher allocations for social sectors. The budget also includes provisions to support the poor, youth, farmers, and women.

Despite these measures, the finance minister adhered to the fiscal consolidation roadmap, forecasting a fiscal deficit of 4.4% of GDP in FY26, down from an estimated 4.8% in the current fiscal year.

Additional announcements include duty cuts on intermediaries and life-saving drugs. To offset revenue losses, capital expenditure is set at ₹11.21 lakh crore for the next fiscal, compared to ₹10.18 lakh crore in the current year. Increased dividends from the Reserve Bank of India and other state-owned financial institutions are also expected to help bridge the gap.

This budget comes amid India’s slowest economic growth since the pandemic and rising global geopolitical risks, particularly with U.S. President Donald Trump threatening new trade tariffs, including on India. GDP growth is projected at 6.4% for the current fiscal and between 6.3% and 6.8% in FY26—below the 8% required to achieve the ambitious goal of making India a developed nation by 2047.

The finance minister reaffirmed the government’s commitment to maintaining fiscal discipline, targeting a central government debt-to-GDP ratio of 50% by March 2031.

Other notable initiatives include:

A national mission to boost high-yielding crops, particularly pulses and cotton
An increase in subsidized farm credit limits from ₹3 lakh to ₹5 lakh
Policies to promote manufacturing and exports
A new strategy for labor-intensive sectors such as leather and footwear
A push to establish India as a global hub for toy manufacturing
Additionally, Sitharaman announced a social security scheme for nearly 1 crore gig workers and a ₹10,000 crore fund-of-funds to support startups.

A major energy sector reform includes setting a target of generating at least 100 gigawatts of electricity from nuclear energy by 2047. To facilitate private sector investment, nuclear liability regulations will be amended.

In trade policy, customs duties on several goods, including open cells, have been reduced, while critical minerals like cobalt, lithium-ion battery scraps, lead, and zinc have been fully exempted from import duties.

Commenting on the budget, Christian de Guzman, Senior Vice President at Moody’s Ratings, noted that while fiscal consolidation has slowed to support economic growth, India’s debt burden remains a concern. He highlighted that tax relief measures have constrained revenue growth, making expenditure cuts necessary to meet fiscal targets.

Despite progress toward near-term policy goals, Moody’s does not anticipate a significant improvement in India’s fiscal strength relative to its investment-grade peers.

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