Union Budget: – Highlights Of Budget 2025

11th February, 2025 - 11:08 am Categories: TAX 0 Comments

The recent developments and changes in the 2025 budget by Union Minister Nirmala Sitaraman have triggered major changes in the Indian Taxation system and the economy.

These Changes aim to simplify compliance, offer relief to the middle class, and boost disposable income, thereby stimulating economic growth. The new tax slabs bring substantial modifications, especially under the new tax regime, with an increased rebate, higher standard deductions, and new tax brackets.

This article provides a comprehensive analysis of the new income tax slabs for 2025, the impact on taxpayers, and key takeaways from the budget.

Introduction to the New Income Tax Regime

The Indian government has been actively promoting the new tax regime since its introduction in the Union Budget 2020. The latest changes further encourage taxpayers to shift to the new system, which offers lower tax rates but fewer deductions and exemptions.

In the Budget 2025, the government has revised the income tax slabs to provide greater relief to taxpayers, particularly those in the middle-income group.

Need of New Regime

The government aims to simplify the taxation process by reducing dependence on deductions and exemptions. With fewer complications, individuals can calculate their tax liabilities easily without the need for extensive tax planning.

The revised tax structure also aligns with global practices, where lower tax rates with minimal deductions encourage better compliance and higher tax revenue.

Old Tax Regime: No Major Changes but Adjustments to Exemptions

Although the new tax regime has been simplified, the old tax regime—which allows taxpayers to claim various deductions such as 80C, 80D, HRA, etc.—remains in place for those who wish to avail themselves of these exemptions. While the new 2025 revisions did not introduce significant changes to the old tax regime, there have been some small adjustments to income tax exemptions and deductions:

• Income Tax Slabs (Old Regime):

The income tax slabs for individuals opting for the old regime remain unchanged for the 2025 budget year. However, individuals can now avail themselves of an increased limit for Section 80C (Investment Deductions), rising from ₹1.5 lakh to ₹1.75 lakh, encouraging more investments in retirement schemes and tax-saving instruments.

• Additional Deductions:

The Section 80D (Health Insurance) deduction limit has also been raised slightly for both individual taxpayers and their parents, which means better tax-saving opportunities for those investing in health insurance.

• Standard Deduction:

The standard deduction has been increased for salaried individuals, moving up from ₹50,000 to ₹75,000, which brings more relief to employees, especially in the lower and middle-income brackets.

• Tax Exemption for Long-Term Capital Gains (LTCG):

The government has increased the exemption for long-term capital gains (LTCG) on equity investments, where individuals can now exempt up to ₹2 lakh of LTCG, up from ₹1 lakh in the previous year.

These tweaks and exemptions under the old tax regime continue to provide an incentive for those who prefer to manage their own tax planning by leveraging exemptions, deductions, and rebates.

 Impact on the Middle-Class Taxpayer

The new income tax slabs for 2025 are particularly favourable for the middle-class taxpayer. The increase in the income tax exemption threshold (up to ₹3 lakh for general individuals and ₹5 lakh for senior citizens) reduces the tax burden on a large section of the population. The revision also simplifies tax filing, as many individuals who earn below ₹5 lakh will no longer need to file a return in the new regime.

• Reduced Tax Burden: With the increased threshold and lower tax rates in the lower income brackets, many middle-income earners will see a reduction in the amount of tax they pay. For example, individuals earning between ₹3 lakh and ₹6 lakh now face only a 5% tax rate, down from 10% in the previous years.
• Focus on Disposable Income: By simplifying the process and reducing the overall tax burden, the 2025 tax reforms aim to increase disposable income, thus improving the financial well-being of the middle class.

 New Tax Slab

• Reforms in Agriculture and Various Other sectors

1^st Engine: Agriculture

• ‘Prime Minister Dhan-Dhaanya Krishi Yojana’ to increase productivity and diversify crops.
• ‘Rural Prosperity and Resilience’ program to address underemployment in agriculture.
• 6-year “Mission for Aatmanirbharta in Pulses” to focus on Tur, Urad, and Masoor.
• Comprehensive Programme for Vegetables & Fruits, National Mission on High Yielding Seeds, and a five-year Mission for Cotton Productivity.
• Increase in loan limits from Rs. 3 lakhs to Rs. 5 lakhs for loans through Kisan Credit Cards under modified interest subvention scheme.

  2^nd Engine: MSMEs

• MSMEs make up 45% of exports.
• Investment and turnover limits for MSMEs have been increased to 2.5 and 2 times, respectively.
• Steps have been taken to improve credit availability with guaranteed cover.
• A new scheme for first-time entrepreneurs for 5 lakh women, Scheduled Castes, and Scheduled Tribes has been launched.
• A scheme to make India a global hub for ‘Made in India’ toys will be implemented.
• A National Manufacturing Mission will be established to further “Make in India”.

  3^rd Engine: Investment

• Prioritizing investment in people, economy, and innovation.
• Announcement of 50,000 Atal Tinkering Labs in Government schools in next 5 years.
• Broadband connectivity to all Government secondary schools and primary health centres in rural areas under Bharat net project.
• Implementation of Bhartiya Bhasha Pustak Scheme for digital-form Indian language books.
• Establishment of Five National Centres of Excellence for skilling with global expertise and partnerships.
• Establishment of a Centre of Excellence in Artificial Intelligence for education with a total outlay of 500 crore.
• Government’s arrangement for Gig workers’ identity cards, e-Shram portal registration, and healthcare under PM Jan Arogya Yojana.
• Infrastructure-related ministries to develop a 3-year pipeline of projects in PPP mode.
• Outlay of Rs 1.5 lakh crore for 50-year interest-free loans to states for capital expenditure and reform incentives.
• Second Asset Monetization Plan 2025-30 to plough back capital of Rs 10 lakh crore in new projects.
• Extension of Jal Jeevan Mission till 2028 for quality of infrastructure and rural piped water supply schemes.
• Setup of an Urban Challenge Fund of Rs.1 lakh crore for ‘Cities as Growth Hubs’, ‘Creative Redevelopment of Cities’, and ‘Water and Sanitation’.
• National Geospatial Mission proposed for foundational geospatial infrastructure and data.
• Gyan Bharatam Mission proposed for survey, documentation, and conservation of over 1 crore manuscripts.

  Investing in the Economy: Building a Stronger India

Gig workers to get official identity cards, e-Shram portal registration, and healthcare benefits under PM Jan Arogya Yojana, ensuring security and dignity for India’s growing workforce.

In a landmark move towards inclusive growth and worker security, the government has announced official identity cards for gig workers, along with e-Shram portal registration and healthcare benefits under PM Jan Arogya Yojana. This initiative is a game-changer for India’s fast-growing gig economy, ensuring that millions of workers—who drive food delivery, ride- hailing, e-commerce, and digital services—receive social security, financial stability, and healthcare access.

 Bridging the Gap: Legal Recognition of Gig Workers

The legal status and rights of gig workers have long been debated in Indian courts. A crucial case, Indian Federation of App-based Transport Workers (IFAT) v. Union of India (2021), brought this issue into the spotlight. In this case, gig workers demanded social security benefits under the Unorganised Workers’ Social Security Act, 2008, arguing that they should be treated as “worker” rather than independent contractors. Although the case underscored the lack of statutoryprotection for gig workers, it sparked policy discussions that have now translated into progressive reforms like the e-Shram portal and identity cards.

4^th Engine: Export

• Jointly drives the Export Promotion Mission to help MSMEs tap into the export market.
• Proposed ‘BharatTradeNet’ for international trade as a unified platform for trade documentation and financing.
• Supports domestic manufacturing capacities for integration with global supply chains.
• Supports domestic electronic equipment industry for Industry 4.0 opportunities.
• Proposed National Framework for promoting Global Capability Centres in emerging tier 2 cities.
• Facilitates infrastructure and warehousing for air cargo, including high-value perishable horticulture produce.

Corporate Tax Reforms

Alongside personal income tax reforms, the government has also introduced revisions to corporate tax rates. For the fiscal year 2025, the corporate tax slabs have been streamlined to provide more incentive for businesses to invest and grow:

• For Domestic Companies: The corporate tax rate has been reduced to 22% for domestic companies opting for the new regime, making it one of the most competitive corporate tax rates globally.
• For Small and Micro Enterprises: Companies with turnover up to ₹5 crore will be eligible for a lower tax rate of 18%, aimed at easing the financial pressure on smaller businesses.
• Tax on Capital Gains for Corporations: There has been a shift in tax treatment on long-term capital gains (LTCG) for corporates, with a revised threshold for taxation on gains from investments exceeding ₹1 crore.

Marginal Relief

Marginal relief is a tax adjustment designed to ensure that taxpayers whose income slightly exceeds a tax threshold do not end up paying significantly higher taxes compared to those who remain just below the limit. It is particularly relevant for:

• Individuals who cross the basic exemption limit.
• Senior citizens who move into a higher tax bracket.
• Companies and businesses that slightly exceed tax slab thresholds.

1. Marginal Relief for Individuals in Budget 2025

The government has revised the tax slabs in the new regime to increase the exemption limit to ₹3 lakh for individuals and ₹5 lakh for senior citizens.

• If a taxpayer earns slightly above these thresholds, marginal relief ensures they do not pay excessive taxes compared to someone earning just below the limit.
• The rebate under Section 87A has also been adjusted, providing full tax exemption for income up to ₹7 lakh in the new tax regime.

Example:

• If an individual earns ₹7.1 lakh, they should technically fall under a taxable bracket.
• However, under marginal relief, they would not have to pay significantly higher taxes than someone earning ₹7 lakh.

2. Marginal Relief for Senior Citizens

• The tax exemption limit for senior citizens has increased to ₹5 lakh in Budget 2025.
• If a senior citizen earns slightly above ₹5 lakh, they would be eligible for marginal relief to prevent a sudden increase in tax liability.

3. Marginal Relief for Corporate Taxpayers

Corporate tax reforms in Budget 2025 introduced:

• A reduced corporate tax rate of 18% for small and micro enterprises with turnover up to ₹5 crore.
• Marginal relief applies to businesses that slightly exceed this turnover threshold, ensuring they do not face a steep increase in tax rates.

Example:

• A company with a turnover of ₹5.01 crore would not be taxed at a significantly higher rate compared to one with ₹4.99 crore.
• Marginal relief ensures that businesses near the threshold do not experience a drastic jump in tax liability.

Impact of Marginal Relief in Budget 2025

• Encourages Tax Compliance: By preventing excessive tax jumps, taxpayers are more likely to report their income honestly.
• Protects Middle-Class Earners: Those earning slightly above exemption limits will not face an unfair tax burden.
• Boosts Small Businesses: Small enterprises near tax thresholds benefit from gradual tax transitions rather than sharp increases.

Main Highlights of 2025 New Regime

• No income tax for individuals earning up to ₹1 lakh per month, aiming to enhance middle-class savings and consumption.
• Salaried employees with an annual income of up to ₹12.75 lakh will not be liable for income tax under the new regime.
• The Union Budget identifies four key drivers of economic growth: agriculture, MSMEs, investment, and exports.
• The ‘Prime Minister Dhan-Dhaanya Krishi Yojana’ will benefit 1.7 crore farmers and cover 100 districts with low agricultural productivity.
• A “Mission for Aatmanirbharta in Pulses” will be launched, focusing on crops like tur, urad, and masoor.
• Farmers can avail loans up to ₹5 lakh under the modified interest subvention scheme via Kisan Credit Cards (KCC).
• Fiscal deficit for FY25 is projected at 4.8%, with a target reduction to 4.4% in FY26.
• MSMEs will benefit from an increased credit guarantee cover, raised from ₹5 crore to ₹10 crore.
• A national manufacturing mission will be introduced to support industries of all sizes under the “Make in India” initiative.
• 50,000 Atal Tinkering Labs will be established in government schools over the next five years.
• A Centre of Excellence for Artificial Intelligence in Education will be set up with a budget allocation of ₹500 crore.
• The PM Svanidhi scheme will be expanded, providing increased bank loans and UPI-linked credit cards with a ₹30,000 limit.
• Gig workers will receive identity cards, be registered on the e-Shram portal, and get healthcare benefits under the PM Jan Arogya Yojana.
• A ₹1 lakh crore Urban Challenge Fund will be launched to promote cities as growth hubs.
• The Nuclear Energy Mission will receive ₹20,000 crore for research and development of small modular reactors.
• The modified UDAN scheme will improve regional air connectivity by adding 120 new destinations.
• The SWAMIH fund will receive ₹15,000 crore to facilitate the completion of an additional one lakh stressed housing units.
• ₹20,000 crore will be allocated to promote private-sector-driven research, development, and innovation initiatives.
• The ‘Gyan Bharatam Mission’ will survey and conserve over one crore manuscripts.
• The Foreign Direct Investment (FDI) limit for the insurance sector will be increased from 74% to 100%.
• The ‘Jan Vishwas Bill 2.0’ will be introduced to decriminalize over 100 provisions in various laws.
• The deadline for filing updated income tax returns will be extended from two years to four years.
• Overdue payment of TCS (Tax Collected at Source) will be decriminalized.
• The TDS (Tax Deducted at Source) threshold on rental income will be increased from ₹2.4 lakh to ₹6 lakh.
• Basic Customs Duty (BCD) will be exempted on 36 life-saving drugs and medicines for treating cancer, rare diseases, and chronic illnesses.
• BCD on IFPD (Integrated Flat Panel Display) will be raised to 20%, while that on open cells will be reduced to 5%.
• BCD on components of open cells will be waived to promote domestic manufacturing.
• Support battery production, customs duty exemptions will be granted on capital goods for EV and mobile battery manufacturing.
• Raw materials and components used in shipbuilding will be exempt from BCD for 10 years.
• The BCD on frozen fish paste will be reduced from 30% to 5%, and on fish hydrolysate from 15% to 5%.

Conclusion

The Union Budget 2025 marks a significant step toward a more equitable and efficient taxation system. By prioritizing middle-class relief, supporting small businesses, and implementing marginal relief, the government has aimed to balance economic growth with taxpayer welfare. The streamlined tax structure not only simplifies compliance but also encourages investment and financial stability. With these reforms, India moves towards a future of sustainable economic progress, fostering a tax regime that is both growth-oriented and inclusive.

Author: Tanya Bajaj, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

References

1. Summary of union budget 2025-26 (no date) Press Information Bureau.

Available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2098352

2. Income tax slab for FY 2024-25 and FY 2025-26 (new & old tax regime rates) clear tax.

Available at: https://cleartax.in/s/income-tax-slabs (Accessed: 03 February 2025).

3. Income tax slab for FY 2024-25 and FY 2025-26 (new & old tax regime rates)

Available at: https://cleartax.in/s/income-tax-slabs (Accessed: 03 February 2025).

4. Income tax slab for FY 2024-25 and FY 2025-26 (new & old tax regime rates)

 Available at: https://cleartax.in/s/income-tax-slabs (Accessed: 03 February 2025).