A day before the presentation of the Union Budget 2025-26, Prime Minister Narendra Modi hinted at changes to the income tax slab rates when he tweeted, “I pray to Goddess Lakshmi that the poor and the middle-class sections in the country are blessed by her.” In her budget speech made in Parliament on Saturday, February 1, Union Finance Minister Nirmala Sitharaman announced “personal income tax reforms with special focus on the middle class.”
The most notable of the proposed reforms was the extension of the ‘nil tax’ slab to Rs 12 lakh. She stated, “To taxpayers up to Rs 12 lakh of normal income (other than special rate income such as capital gains) tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them.”
The budget speech also announced the introduction of a new Income Tax Bill in Parliament in the coming week. According to the FM, the new bill will be “clear and direct in text with close to half of the present law, in terms of both chapters and words.”
Customs duty exemption for medicines and minerals
Tariff cuts announced in the budget are likely to make several products cheaper for consumers in India, such as certain lifesaving drugs, mobile phones, and electric vehicles. The decision has come close on the heels of a statement made by US President Donald Trump earlier this week, terming India, Brazil, and China “tremendous tariff makers.” Trump is expected to strongly push his America First trade policy and take steps to overcome the trade deficit that the US currently faces in its bilateral trade with India, which might include high tariff rates for goods that India exports to the US.
Lifesaving drugs and medicines – used to treat cancer, rare diseases, and other severe chronic diseases – will be exempted from basic customs duty (BCD). While 36 drugs and medicines will receive full exemption from the duty, six medicines will receive a concessional rate of 5%. Imported bulk drugs used in the manufacturing of these lifesaving medicines will also be exempted from duty. The Minister also announced the setting up of day care cancer centres in all district hospitals within the next three years.
The budget also proposed to fully exempt critical minerals (cobalt powder and waste, the scrap of lithium-ion battery, lead, zinc, and 12 other minerals that are not domestically available) from BCD. Furthering the government’s stated aim to promote electric vehicles (EV), the budget also said that 35 capital goods for EV battery manufacturing and 28 capital goods for mobile phone battery manufacturing will be added to the list of duty-exempted goods. “This will boost domestic manufacture of lithium-ion batteries, both for mobile phones and EVs,” the budget stated.
Cheaper: Lifesaving medicines, smartphones, jewellery, EV batteries, LEDs, marine products, 12 critical minerals, and certain categories of imported cars and motorcycles.
Costlier: Imported footwear, solar cells, PVC flex items, certain imported fabrics and fully built interactive flat panel units
Other fiscal policy announcements
The budget estimate for FY 2025-26’s fiscal deficit is 4.4% of the Gross Domestic Product (GDP). The estimate is in keeping with the government’s aim announced in Budget 2021-22 to reduce the fiscal deficit below 4.5% by 2025-26. The revised estimate of the fiscal deficit in 2024-25 is 4.8%. A fiscal deficit is the difference between the total revenue and total expenditure of a government in any given financial year. The deficit, as the term suggests, occurs when expenditure exceeds revenue generated.
The Minister opened her budget speech with the statement that the country’s development journey will be driven by four engines, namely, agriculture, MSMEs, investments, and exports. The budget proposed the enhancement of credit through the Kisan Credit Card, from Rs 3 lakh to Rs 5 lakh. According to the Finance Minister, 36% of the country’s manufacturing and 45% of exports are currently owed to Micro, Small, and Medium Enterprises (MSME). In a huge boost, the budget announced an increase in the annual cap on investment and turnover limits for all MSMEs to 2.5 and two times, respectively.
She also announced the exemption of the Social Welfare Surcharge on 82 tariff lines that are subject to a cess.
Bihar, which is headed for Assembly polls later this year, also saw largesse coming its way. The FM announced setting up of the Makhana (fox nuts) board, an institute of food processing, greenfield airports, expanding the hostel and infrastructure capacity at IIT Patna, and the Western Koshi Canal Project in Mithilanchal. The generosity extended to Nitish Kumar, however, was not extended to Andhra, where the ruling Telugu Desam Party also extended its support to BJP after the Lok Sabha elections in 2024.
Reactions to the budget
Kerala Chief Minister Pinarayi Vijayan called the budget a “blatant attack on federalism”. He said, “The Union Budget 2025 has completely ignored Kerala’s crucial demands-no aid for Wayanad, no AIIMS, and no support for Vizhinjam. Our rightful borrowing limits are curtailed, industries sidelined, and farmers neglected. “
Congress leader KC Venugopal slammed the budget, stating that it did not have a vision for job creation, no proposals to improve India’s investment climate, no minimum support price guarantee for farmers, and no strategy to counter inflation. “This budget shows yet another attempt at destroying MGNREGA as the Centre failed to increase the budget allocated for the scheme that provides a safety net for crores of Indians,” he added.
DMK MP Dayanidhi Maran told the media that the budget is a big letdown. “The FM claims to be giving tax exemption up to an income of Rs 12 lakh. But, the very next line, she says that there is a 10% tax on Rs 8-12 lakh. That means you say there is no tax, but there is tax.” He also said that the announcements were made to woo voters in Delhi and Bihar. “Since Bihar elections are coming, we see a lot of announcements towards Bihar, which are again fooling the voters of the state,” he said.
Karnataka Chief Minister Siddaramaiah said it was a disappointing budget and none of the requests made in the pre-budget meetings had been fulfilled. ”The Union government continues to deprive the state. None of the ministers at the Union from the state have bothered to represent the state’s interests,” he said.
