Summary:
- The Union Budget 2025 strategically balances tax relief for the middle class while sustaining capital expenditure and fiscal consolidation.
- Despite income tax reductions, the government anticipates a fiscal deficit of 4.4% of GDP in 2025-26, down from 4.8% in 2024-25, aided by a projected 10% rise in total receipts.
- Capital expenditure remains steady, and subsidy spending is slightly reduced, ensuring controlled financial management while promoting economic growth.
The Union Budget 2025 strives to strike a delicate balance between providing tax relief to the middle class and maintaining capital expenditure and fiscal consolidation. Budget documents indicate that the government expects a marginal reduction in subsidy expenses compared to the previous year’s projections. Despite implementing tax cuts, the fiscal deficit-to-GDP ratio is forecasted at 4.4% for 2025-26, improving from the revised estimate of 4.8% for 2024-25.
The government’s fiscal consolidation strategy is underpinned by an anticipated 10% growth in total receipts for 2025-26, while total expenditure is set to increase by 5%. During her budget presentation, Finance Minister Nirmala Sitharaman introduced significant tax relief measures, including an increase in the income threshold for tax rebates. Individuals earning up to Rs 12 lakh annually will now receive rebates, effectively eliminating their tax burden. Previously, this exemption was capped at Rs 7 lakh per annum. Furthermore, tax slabs have been adjusted, and the highest tax rate of 30% now applies to incomes above Rs 24 lakh, up from the previous Rs 15 lakh threshold.
These tax adjustments are expected to enhance disposable income among the middle class, boosting domestic consumption. Experts believe this move will provide much-needed momentum to India’s economic growth. The Finance Minister also acknowledged that the revised income tax structures, along with modifications in TCS and TDS regulations, would result in an annual revenue impact of Rs 1 lakh crore. Despite this, the government projects a total receipt of Rs 34.1 lakh crore for 2025-26, reflecting a 10.2% increase over the 2024-25 budgeted estimates. Gross tax revenue is expected to rise by 11.2% to Rs 42.7 lakh crore, with income tax revenue alone growing by 21% compared to FY25 estimates.
Corporate tax revenue is expected to touch Rs 10.8 lakh crore, marking a modest 6% increase over FY25 projections. Additionally, earnings from dividends and public sector enterprises, including the Reserve Bank of India, are expected to rise to Rs 3.25 lakh crore in FY26 from Rs 2.89 lakh crore in the previous year.
Regarding expenditures, the government has budgeted a total outlay of Rs 50.6 lakh crore for 2025-26, a 5% increase over 2024-25. Capital expenditure is projected to remain largely unchanged at Rs 11.2 lakh crore, reflecting only a 0.9% rise from the previous year’s budgeted figure but a notable 9.8% increase from revised estimates. Subsidy expenditure is expected to be slightly lower, reducing from Rs 42.8 lakh crore in the previous year’s budget to Rs 42.6 lakh crore in 2025-26.
Conclusion:
The Union Budget 2025 showcases a well-balanced fiscal strategy that prioritizes middle-class tax relief while maintaining fiscal prudence. By ensuring steady capital expenditure, moderate subsidy reductions, and a projected increase in revenue, the government aims to sustain economic growth while working towards fiscal consolidation. These measures collectively position India on a stable financial path for the upcoming fiscal year.
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