Will the Budget 2025 loosen purse strings?

Beating all expectations, the Finance Minister, while presenting the Union Budget 2025, announced eye-popping tax breaks to the tax payer. While it looks like a populist move, it follows the sound economic principle that more disposable money in the hands of citizens will spur consumer spending, and thereby give a leg-up to the economy

Union Budget 2025 was tabled on 1st February. Since then, it has been much discussed and debated. The ethos of any budget is normally taxation and this year’s budget is no exception. But, it has been a unique budget as it broke all past records while giving tax-rebates.

Huge tax break

Now, for an income of up to Rs.12 lakh there will be no tax liability (Rs.12.75 lakh for salaried taxpayer considering the standard tax deduction) under the new tax regime. This has been possible by increasing the tax-rebate under Section 87A of the Income Tax Act. Earlier, the threshold limit for no tax was Rs.7 lakh with rebate.

This big step has been taken against the odds of our narrow tax-base. Roughly about 8 crore returns of income are filed from out of our population of about 140 crores-7.28 crore returns filed for FY 24-25 so far, which works to about 6%. But the actual number of taxpayers is only around 2%, as the majority of the returns are filed to claim back refunds against TDS. The courageous step of the government this year results in the loss of tax revenue of Rs.1 lakh crore, and the number of actual taxpayers has now reduced to about one crore.

The bold step of the government benefits all taxpayers, but mainly the middle class. More than 90% of our taxpayers are from the middle class and out of them the majority are salaried people. Together with the increase in the tax-rebate, tax slabs too have been revised, and this helps even taxpayers with more than Rs 12 lakh income.

Why? Why? Why?

The budget 2025 poses a vital question as to why such a bold measure has been taken? Is it a populist measure to please the middle class for votes? The answer is that there is a strong economic reason and pleasing a section of the population is a by-product of that.

More loose lucre

The Indian economy is mainly dependent upon the consumption and demand of the people. Since we are the most populous country, an increased demand from our people can lead to more manufacturing and thus to a higher GDP. Of late, due to stagnating salaried income and increasing inflation, the disposable income of a big section of our people was getting reduced. People were getting constrained to limit their expenditure to necessary needs only. It became imperative to put more money in the pocket of our people, so as to increase their expenditure and the consequent demand.

The government chose the middle class, as it is they who can become quick catalytic agents for higher demand and thus cause quicker higher growth in the economy. Tax payers have been silently paying for the growth of the country and it is prudent for the government to choose them for some benefit. The welfare measures for the poor and needy have not been curtailed, but some money has also been put in the right pockets to ignite growth and development. The action of the government is supported by the Keynesian theory in economics, which says that there is a common tendency for people to spend more on consumption when income increases, while a part of the income is saved.

Budgetary layout

Some of the points noted in the budget, other than the rebate in the income-tax are as follows:

Budget 2025 poses a vital question as to why such a bold measure has been taken? Is it a populist measure to please the middle class for votes? The answer is that there is a strong economic reason and pleasing a section of the population is a by-product of that

Spotlight areas:

Special importance given to Bihar:

• Greenfield Airports
• Makhana Board
• Kosi Canal
• Efforts made to attract more investment in nuclear energy field. Plans to amend nuclear liability law and set up nuclear energy mission.
• Reconsideration of TDS and TCS for the benefit of taxpayers. The threshold limit increased in some cases so that small income people benefit
• Providing benefit to taxpayers, the updated returns get more time of four years than existing two years.
• TDS against rental income from house property only when rent is Rs.6 lakh or above (annual) as against 2.4 lakh existing earlier.
• FM proposes to introduce the new Tax Bill during the Budget Session. The new Bill will be almost half of the present Income-Tax Act.
• Investment limit for MSME classification to be made 2.5 times. Turnover limits for MSME classification to be doubled.
• Kisan Credit Cards loan limits increased from 3 lakh to 5 lakh. More than 7 crores farmers have Kisan Credit Cards.
• Boost for footwear, leather and toy industries. Efforts to make the toy industry a global hub.
• Credit guarantee cover to be enhanced for MSMEs and start-ups
• Seats in IITs and Medical Colleges to increase.
• Setting up of five national centres of excellence for skills, for preparing youth for global opportunities. Global skill partnerships to enable India become a key player in manufacturing.
• The modified UDAN scheme will be launched to connect 120 new destinations and cater to 4 crore passengers over the next 10 years.
• Government will offer a national guidance framework to help states promote global capability centres (GCCs) and enhance their growth.
• Government to draft model bilateral treaty to attract foreign investment.
• FDI in insurance hiked from 74 % to 100 %.
• Measures to promote fisheries.
• Proposal to remove 07 tariff rates, over and above those removed in the earlier budget.
• No basic customs duty (BCD) on 36 lifesaving drugs for cancer and other diseases. BCD exempted on 37 more medicines. BCD reduced from 38.5% to 35% on dutiable items imported by passengers and crew members. Also, slashing of BCD from 38.5% to 20% on goods imported for personal use. Reduction of BCD on articles of jewellery.
• No tax for two houses if self-occupied
• Proposed capital expenditure from 11.11 lakh crores to 11.21 lakh crores.

It is surprising that while common people like the middle class, poor, youth, farmers and women have much to cheer about the budget, there are many whose expectations have not been met. The stock market has not reacted positively.

Slip-up on capex

The stock market is not happy as higher capital expenditure has not been announced. The big corporates should realise they are also stakeholders in India’s economy and that they have not gone for new capital expenditure on new factories and big expansions for quite some time now. The Economic Survey 2025 has even adversely commented that though the companies have earned huge profits, they have not increased the wages or gone for adequate fresh recruitments.

We must appreciate that tax givers honestly have to be appreciated and helped. The fiscal deficit has been reduced and kept at 4.4 % despite constraints.