New Delhi:

The income tax benefit announced for the middle class in the Union Budget 2025-26 on Saturday is the biggest relief provided by any government for the concerned economic strata so far, India’s G20 Sherpa and former NITI Aayog CEO Amitabh Kant has said.

The budget for the upcoming financial year focuses on growth and creation of jobs, and provides a huge fillip for demand creation, Mr Kant told NDTV. “I rate the budget very high,” he added. 

Mr Kant’s remarks came as the Narendra Modi-led government exempted annual income of up to Rs 12 lakh from income tax and rejigged tax slabs as part of a reformist Budget. 

Presenting her eighth straight Budget in the Lok Sabha, Union Finance Minister Nirmala Sitharaman laid out a blueprint for next-generation reforms. She announced the setting up of a National Manufacturing Mission to further promote Make in India initiative, and said support will be provided to develop domestic manufacturing capacities for the Indian economy’s integration with global supply chains.

Manufacturing and job creation

Mr Kant hailed the government’s focus on manufacturing and job creation. “You are actually ensuring that consumption drives the economy, and consumption will lead to greater demand, and demand will lead to greater production, and production will lead to greater jobs,” he said.  

“So, this, to my mind, is being done but in a very fiscally responsible manner because the fiscal deficit for this year was 4.8% and next year, the finance minister is aiming for 4.4%. So, she has been fiscally very responsible and prudent. I think the key highlights of this budget is the huge focus on the labour-intensive sector,” he added. 

The former NITI Aayog CEO also claimed that “never before has so much emphasis been put on tourism, footwear, leather, toys and on about a 100 aspirational districts in the agricultural sector.” “So, a vast impact on labour-intensive sectors which will happen through the creation of jobs,” he said. 

Boost for labour-intensive sectors

The government has announced a focused product scheme for footwear and leather sectors to enhance its productivity, quality and competitiveness. Besides, it announced a scheme to make India a global hub for toys by focusing on cluster development.

Mr Kant said the Union Budget 2025-26 is “very progressive on some of the labour intensive sectors”. “For every job that you create in tourism, you are creating 11 indirect jobs. A massive impact on growth with jobs. We have not even scratched the surface of the tourism potential in India. We have so much heritage and so much culture that you need to tap into,” he said. 

Likewise, the toy sector also has massive potential, he said. “Look at footwear, look at leather. Huge potential… objective of bringing cutting edge technology, storage, credit to 100 backward districts in the agricultural sector… All this can be path-breaking as far as creating jobs is concerned. While growth will create jobs, focus on the labour intensive sector, with growth means that you are going for growth with labour intensity, which is very very important in the case of India,” he explained. 

On the Finance Minister’s announcement of setting up a National Manufacturing Mission, Mr Kant said it’s very important to drive manufacturing since a high proportion of the population are dependent on agriculture. “They are poorly paid, you need to move them to good jobs in the manufacturing sector. That, to my mind, is very important. The budget does that through the instrument of credit guarantee,” he said. 

Credit guarantee for start-ups, MSMEs

Start-ups and Micro, Small and Medium Enterprises (MSMEs) can use the credit guarantee, he said. Also, it (budget) lays emphasis on a lot of cutting edge areas of growth. Artificial intelligence, clean tech, etc. Now, my view is that the private credit to the GDP ratio needs to be enhanced. The finance minister has done her bit. The Reserve Bank of India needs to ensure flow of greater credit in a systematic and orderly manner through the monetary policy,” he said. 

Technology and innovation

The Union Budget 2025-26 also lays a lot of emphasis on innovation, technology and start-ups, Mr Kant said. “To put up 10,000 crores of funds for start-ups, replenish it. Also talk about another 10,000 crore of funds for deep tech, with a 20,000 crore for innovation. All this will have a multiplier impact on the economy. And then a clean tech mission, so that we can manufacture solar, fuel cells and batteries. All this in India… all this is very very important to my mind,” he said. 

“Lastly, I would say that this thrust towards nuclear energy and opening up the insurance sector are also very very major initiatives,” he added. 

The G20 Sherpa appreciated the government’s efforts to focus on cutting edge technology, whether through the clean tech mission or through Artificial Intelligence (AI). 

“Last year, the finance minister had given three centres of excellence. This year, she has given another centre of excellence in AI for education. But more important than that is the huge focus and emphasis on start ups, which will do cutting edge work in many of these new tech areas of growth. So we need to grow AI, we need to grow in quantum computing, we need to grow in semiconductors, we need to grow in clean tech areas. All this has had a very huge emphasis in the last two years and that will enable India to technologically pole vault in the coming years,” he said. 

New and emerging technologies were in focus in the Union Budget, as Ms Sitharaman announced a national framework for Global Capability Centres (GCCs), Rs 500-crore Centre of Excellence in AI for education, and said a deep tech “Fund of Funds” will be explored to catalyse the next generation startups. 

“I announced three Centres of Excellence in Artificial Intelligence for agriculture, health, and sustainable cities in 2023. Now a Centre of Excellence in Artificial Intelligence for education will be set up with a total outlay of Rs 500 crore,” she said.

For income taxpayers, the ‘nil tax’ slab was increased to Rs 12 lakh in the Union Budget 2025.

Despite announcing that no income tax needs to be paid up to an income of Rs 12 lakh under the new regime, the government is still expecting the share of income tax in gross tax collections to increase in the financial year FY26. In contrast, the share of receipts from corporate tax in the gross tax collections is expected to slightly decline in FY26. 

Union Budget 2025 LIVE updates

The government is expecting to get Rs 14,38,000 crore from income tax collections in FY26, which forms 33.7% of the gross tax collections for that year. This is an increase of more than one percentage point from the previous year (Rs 12,57,000 crore or 32.6%). On the other hand, receipts from corporate tax are expected to be Rs 10,82,000 in FY26, which forms 25.3% of the gross tax collections for that year. This is a slight decline of 0.1% point from the previous year (Rs 980000 crore or 25.4%). 

It is to be noted that, in FY25, the government expected to collect Rs 11,87,000 crore (FY25BE) through income tax, but has so far ended up collecting Rs 12,57,000 crores (FY25RE). 

Table 1 shows the absolute amounts of various types of taxes in Rupees crore. 

The major indirect tax component — Goods and Services tax — is expected to bring in Rs 1,17,8000 crore in FY26, forming 27.6% of the gross tax collections. The share of GST in gross tax collections has remained the same in the past two years. 

Also read: Union Budget 2025 industry reactions LIVE

Other tax components put together including union excise duties, customs and wealth tax is expected to form 13.4% of the Gross tax collections down from 14.4% in the previous year. 

Chart 2 shows corporate tax, personal income tax, GST and other taxes as a share of gross tax revenue. 

As can be seen from the chart, the share of corporate tax has been on a decreasing trend, while that of personal income tax has been increasing.

In FY19, the share of corporation tax in gross tax collections was close to 32%, which reduced to 27% by FY23 and now it is further down to 25.3% in FY26.The sharp fall in corporate tax could be attributed to the deep corporate tax cuts introduced by the Bharatiya Janata Party-led government in September 2019.

For income tax payers, the ‘nil tax’ slab was increased to Rs 2.5 lakh in 2014, then to Rs 5 lakh in 2019 and Rs 7 lakh in 2023, which has been further extended to Rs 12 lakh in the Union Budget 2025. Due to the change in ‘nil tax’ and other slabs, the government is expecting to forgo revenue of about ₹ 1 lakh crore in direct taxes, which amounts to 0.54% of the GDP (in market prices). 

Govt. proposes nil tax on income up to ₹12 lakh per annum under New Tax Regime, Finance Minister Nirmala Sitharaman said in her Union Budget 2025 speech in the Parliament, in New Delhi on February 1. 2025.. (Representational image)

In the most anticipated announcement this Union Budget 2025, Finance Minister Nirmala Sitharaman announced there would be no income tax for incomes up to ₹12 lakhs. She termed it as commitment and trust on the middle class. Effectively, under the new tax regime considering the erstwhile standard deduction of ₹75,000, income of up to ₹12.75 would have no income tax liability.  

Also read: Union Budget 2025 updates

“I am now happy to announce that there will be no income tax payable up to income of ₹12 lakh [i.e. average income of ₹1 lakh per month other than special rate income such as capital gains] under the new regime,” the Finance Minister said.

The move comes in after prevalent consensus in the industry and populace at large about increasing aggregate consumption in the economy. “The new tax structure will substantially reduce the taxes of middle-class and leave more money in the hands of the middle class and boost consumption.”  

Enumerating revisions in tax slabs, the Finance Minister informed that incomes up to ₹4 lakhs would not be taxed, ₹4 to 8 lakhs would host 5% taxation rate, ₹12-16 lakh 10%, ₹12-16 lakh 15%, ₹16-20 lakh 20%, ₹20-24 lakh 25% and incomes above ₹24 lakh 30%.  

Also read: Nirmala Sitharaman’s full speech

A tax payer in the new regime with an income of ₹12 lakh will get a benefit of ₹80,000 in tax; a person having income of ₹18 lakh will get a benefit of ₹70,000 in tax; a person with an income of ₹25 lakh gets a benefit of ₹1.10 lakh, Ms. Sitharaman added.

The Rajya Sabha MP presented her eighth consecutive Budget on Saturday (February 1, 2025) — taking her closer to the record ten budgets presented by former Prime Minister Morarji Desai during his lifetime. 

The income tax system in India operates through a progressive slab structure. The amount of tax an individual pays is directly proportional to their income in a financial year. The system is designed to ensure fairness, where higher earnings are taxed at a higher rate.

The income tax slabs are periodically revised, usually as part of the Union Budget announcements. During the Budget 2024, a few changes were introduced to the tax slabs under the new tax regime, alongside some adjustments to exemptions and deductions.

The new tax regime offers lower tax rates without any deductions. On the other hand, the old tax regime provides several deductions under various Sections of the Income Tax Act, 1961, though the tax rates are higher.

New tax regime slabs (for taxpayers below 60 years of age)

For taxpayers under the new tax regime, the following income tax slabs apply:

• Up to Rs 3 lakh: No tax.
• Rs 3 lakh to Rs 7 lakh: 5 per cent
• Rs 7 lakh to Rs 10 lakh: 10 per cent
• Rs 10 lakh to Rs 12 lakh: 15 per cent
• Rs 12 lakh to Rs 15 lakh: 20 per cent
• Above Rs 15 lakh: 30 per cent

Old tax regime slabs

Under the old tax regime, which still remains available for taxpayers, the income tax slabs are as follows:

• Up to Rs 2.5 lakh: No tax is applicable.
• Rs 2.5 lakh to Rs 5 lakh: 5 per cent 
• Rs 5 lakh to Rs 10 lakh: 20 per cent 
• Rs 10 lakh and above: 30 per cent

The standard deduction for salaried taxpayers has been increased to Rs 75,000 under the new regime. It remains at flat Rs 50,000 under the old tax regime.  

Choosing between the old and new tax regimes

When deciding between the old and new tax regimes, assess both and choose the one suited best as per your earnings and investments.

Old regime: The old tax system allows for various exemptions and deductions, such as those under Section 80C for investments and Section 80D for insurance premiums. Additionally, individuals can benefit from savings-focused provisions like deductions on home loan interests and HRA (House Rent Allowance). The old regime could be beneficial for those with significant deductions.

New regime: The new tax regime simplifies the tax process by offering lower rates but does not provide the same range of exemptions and deductions. It may suit those with fewer investments or those who prefer simpler tax filing, as it eliminates the need for tax-saving investments. 

How to calculate your tax

To calculate your tax liability under either regime, you must first determine your taxable income:

Old regime: Start with your total income, calculate the applicable deductions (such as 80C, 80D, and others), and apply the relevant tax slabs to the net taxable income.

New regime: You will calculate tax based on your total income, as no deductions are allowed in this regime. Your tax liability is directly calculated according to the tax slabs mentioned earlier.

Inform your employer

One of the most important things to do is to inform your employer about the tax regime you choose, as this will impact the TDS (Tax Deducted at Source) from your salary. Your employer will calculate the tax based on the regime you select, ensuring your taxes are deducted appropriately.

New Delhi:

Representatives from industry bodies sought reduction in personal income tax rates to ensure higher disposable income in the hands of the middle class, reduction in excise duty on fuel, and measures to provide impetus to employment-intensive sectors in their customary pre-Budget meeting with the Finance Minister on Monday.

Industry bodies also raised the issue of dumping of excess stock by China globally, including in India, and challenges posed to food security and inflation due to the “climate emergency”, during the fifth pre-Budget consultation meeting.

The 2025-26 Union Budget will be presented on February 1.

Apart from the finance minister, the meeting was attended by finance secretary, secretary of DIPAM (Department of Investment and Public Asset Management), Secretaries of the Department of Economic Affairs and the Chief Economic Adviser to the Government of India, among others.

Speaking to the media after the meeting, CII President Sanjiv Puri said while the Indian economy is doing very well, globally there are a lot of challenges.

“We are seeing dumping of a lot of products (by China) into various parts of the world, including India. We also have the issue of climate emergency, which, besides other things, also impacts food and nutrition, (food) security and inflation. In this context we have made several suggestions and ideas”.

He said the CII has sought measures to provide impetus to areas that have large employment potential like garments, footwear, tourism, furniture, among others, apart from making suggestions for MSMEs and integrating India into global value chains.

“From a perspective of boosting consumption, we have suggested that there be some relief provided to income tax up to a Rs 20 lakh on the marginal income tax rate so that it boosts consumption, there is more disposable income and in turn also leads to buoyancy in revenues.

“We have also suggested that excise on petroleum be reduced a little, that will also provide higher disposable income and contribute to a virtuous cycle in the hands of the consumers,” Puri said.

FICCI Vice President Vijay Sankar, who was also present in the meeting, said, “Finance Minister and her colleagues gave a very patient hearing to the industry today. There were about 13 people from different industry chambers. There was some commonality of themes across some of the representations, basically the temporary slowdown faced due to dumping products especially by some our neighbours like China due to the slowdown in their economy”.

PHDCCI President Hemant Jain said, “The suggestion we made to the government was reduction in personal income tax so that there can be more money in the hands of people and that can spur the demand and reduce inflation. We have also asked for GST simplification.”

Assocham President Sanjay Nayar said, “We emphasised on what the MSMEs need because they are the backbone of the supply chain… whether it is credit flow, complex registrations, multiplicity of TDS… We focused on simplification of procedures and rationalisation of things like TDS”.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

Union Finance Minister Nirmala Sitharaman holding a folder-case containing the Interim Budget 2024. Ministers of State Bhagwat Kishanrao Karad and Pankaj Chaudhary are also seen.
| Photo Credit: Shiv Kumar Pushpakar

Whilst maintaining the status quo with respect to direct and indirect taxes, Finance Minister Nirmala Sitharaman in her maiden interim budget presentation proposed to withdraw small, non-reconciled and disputed direct tax demands. This implies tax demands of up to ₹25,000 pertaining to the period up to FY 2009-10, and up to ₹10,000 for FY 2011 to 2015 — would be withdrawn. Ms Sitharaman held that that the moves were part of the treasury’s intent to improve ‘ease of living and doing business’.  

Also read: FM Nirmala Sitharaman delivers her shortest Budget speech till date 

This turned out to be the major policy announcement on February 1 as Ms. Sitharaman maintained the status quo for direct and indirect taxes, including import duties.  

‘Improving ease of living and doing business’ 

Elaborating the rationale for the withdrawal, she told the House that there existed a “large number of petty, non-verified, non-reconciled or disputed direct demands”. Many of which went as far back as 1962., she said, as they continue to remain on the books, they were “causing anxiety to honest taxpayers and hindering refunds of subsequent years.” 

The Finance Minister said the move would benefit “about a crore taxpayers”. 

Gouri Puri, Partner at law firm Shardul Amarchand Mangaldas & Co. told The Hindu that the issue (about direct tax demands) has been pertinent to smaller taxpayers. Further, this would help address “legacy demands” that have been existing in the system but might be lacking merit. “There are clients that have non reconciled demands that have not been resolved for five, six or may be ten years,” she said. “The concerned officer will now have an administrative basis to resolve such tax demands,” Ms. Puri added. Terming it as a “welcome move”, Ms. Puri said, “It may not be worthwhile for the government or taxpayers’ time or effort to keep such demands pending or disputed.”  

Before announcing the tax proposals, Ms. Sitharaman had highlighted the government’s prerogative to improve taxpayer services. She pointed to how the “age-old jurisdiction-based assessment system” was transitioned to “faceless assessment and appeal”. This, according to her, imparted greater efficiency, transparency and accountability. The finance minister also said the introduction of updated income tax returns, a new form 26AS and prefilling of tax returns have made filing “simpler and easier”. Further, the average processing time for returns stands reduced from 93 days, as observed in 2013-14, to 10 days at present, she stated.  

No change to direct and indirect tax rates 

Stating that she would be “keeping with the convention”, Ms. Sitharaman proposed to retain the same tax rates for direct and indirect taxes, including import duties. This is in contrast to the last Interim Budget (2019-20), which proposed amending Section 87A of the Income Tax Act to increase the income base for tax rebates from ₹3.5 lakh to ₹5 lakh, breaking from the convention of announcing populist measures before the country heads into a general election.  

Tax holiday extended 

However, tax holidays for start-ups and (tax) benefits on investments made by sovereign wealth or pension funds alongside exemptions on certain income of some IFSC units were extended to March 2025. It was set to expire by March-end this year.  

Rohinton Sidhwa, Partner at Deloitte India explained that the benefits would be relevant in three arenas. Firstly, for start-ups: with the date of incorporation for an eligible start-up extended by one year. Secondly, sovereign wealth funds, who benefit from the extension in making investments that qualify for exemption. And finally, the IFSC units whose date of commencement of operations would now be March 2025. “This extension applies only to specific income — specifically leasing of aircraft and ships and transfer of capital assets on the IFSC exchange,” he explained.  

A surprise on the front sprung up with the sunset clause not being extended for new manufacturing units. “This seems contrary to the policy of the Government to promote manufacturing in India under the PLI scheme. I do hope that this is an error of omission, and we will see a notification to extend this benefit soon,” stated Sanjiv Malhotra, Senior Advisor at Shardul Amarchand Mangaldas & Co.  

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