Highlights of Budget 2025-2026

The Union Budget for FY 2025-2026 was presented on February 1, 2025, by Smt. Nirmala Sitharaman. It has come up with various measures that are in line with the government’s efforts to position India as an economic powerhouse. What’s best is that it balances both priorities for India: economic development as well as social welfare. The government has not only given relief to individual taxpayers but also made it easier for foreign investors to enter sectors such as insurance. The government has also focused on the three pillars of economic growth: people, economy, and innovation, ensuring India continues to be at the forefront of the new-age technological revolution.

Direct Tax Reforms

Since the budget was introduced, the direct tax reforms have become the talk of the town. Let’s understand them in detail.

Revised Tax Slabs

The budget has brought major relief for middle-class individuals, with zero tax for those earning below ₹12 lakhs. Have a look at the new tax slabs that have made it possible:

So, if you are earning ₹12 lakhs, your tax liability will be equal to ₹60,000 as per the new slab rates. But, you will be eligible for a rebate of the same amount (₹60,000) under Section 87A. As a result, you will not have to pay any tax. Moreover, if you are a salaried individual, you can claim a standard deduction of ₹75,000. This means that no tax needs to be paid for a salary up to ₹12,75,000.

It is important to note here that if your salary exceeds ₹12 lakhs (₹12,75,000 in the case of salaried individuals), you will have to pay taxes on the whole amount. For instance, let’s say that you earn ₹13 lakhs. You will pay tax on the entire amount and not just on the difference of ₹1 lakh. Your tax will be calculated as follows:

As your income exceeds the limit under Section 87A, i.e., ₹12 lakhs, no rebate will be allowed and you must pay the entire tax amount of ₹75,000.

TDS/TCS Reforms

You have to pay TDS on a certain income if it exceeds the specified threshold. The government has increased these threshold limits under various TDS sections. This, in effect, leads to tax savings.

The revised threshold limits are summarized as follows:

For instance, let’s say that you are a senior citizen earning a Fixed Deposit interest of ₹70,000.

As per the old rules, the TDS threshold limit for interest other than securities was ₹50,000 for senior citizens. Thus, TDS under Section 194A would have been deducted from your income.

But with the new rules introduced under Budget 2025, no TDS will be deducted. This is because the interest does not exceed the new threshold limit of ₹1 lakh.

Revised Time Limit for ITR-U

ITR-U, also known as the updated ITR, allows you to rectify any errors that you may have made while filing your ITR in the first instance. Earlier, you could file ITR-U within two years from the end of the assessment year. This budget has provided a more extensive window of four years.

Exemptions

The Budget has also made certain changes to tax provisions related to exemptions. Firstly, if you withdraw money from your National Savings Scheme (NSS) account, it will be exempt starting August 2024.

Further, NPS Vatsalya scheme contributions will be treated in the same manner as normal NPS contributions. This means that you can claim a deduction of ₹50,000 for NPS Vatsalya contributions over and above the ₹1.5 lakhs limit of Section 80C.

Presumptive Taxation Under Section 44BBD

If you are a non-resident and provide services to Indian electronics manufacturers, the government has introduced a presumptive taxation scheme for you by inserting Section 44BBD.

With this rule, 25% of your earnings from such services will be considered as your profits. You will not need to do complex calculations to determine your taxable income. Further, you will end up paying tax at an effective rate of less than 10% on gross receipts.

This simplified rule is designed to reduce the compliance burden for non-resident service providers while encouraging growth in India’s electronics sector. Essentially, it streamlines the tax process, making it easier for foreign service providers to operate and contribute to the industry.

Indirect Taxes

The government has also rationalized the custom duties for various sectors to facilitate trade, manufacturing, and exports as well as bring in healthcare relief.

Industrial Goods

The custom tariff structure for industrial goods has been revised to do away with multiple rates. Now, there are only 8 tariff rates, including the ‘zero’ rate. Moreover, only one surcharge/cess will be levied on one item. Thus, Social Welfare Surcharge will not be levied on 82 tariff lines with cess.

Medicines

To improve health outcomes and make medicines accessible, customs duties have been exempted on 36 lifesaving drugs for critical diseases like cancer. In addition, 6 lifesaving medicines will attract a concessional customs duty of 5%.

Manufacturing Boost

In line with the Make in India initiative, the government has exempted cobalt powder, scrap from lithium-ion batteries, and critical minerals from basic customs duty. Relevant custom-duty revisions have also been made for shipbuilding, textile, leather, handicraft goods, marine products, battery manufacturing, and telecommunication-related imports.

Trade Support

The compliance burden on importers and exporters has been reduced. They now have the option to declare material facts and pay duty with interest voluntarily after clearance of goods. They can avoid penalties in this case. New time limits of 2 years and 1 year have been introduced for provisional assessment and the end-use of imported inputs, respectively.

Sector-Specific Announcements

In addition to taxation reforms, the budget has introduced several sector-specific initiatives. These measures target key industries such as finance, agriculture, MSMEs, and exports to create a more resilient and competitive economy.

Financial sector

• The FDI limit in the insurance sector has been raised from 74% to 100%, provided the company invests the entire premium in India. This move will encourage foreign players to enter the Indian market, introduce new insurance products, and boost financial inclusion.
• The National Bank for Financing Infrastructure and Development (NaBFID) will set up a ‘Partial Credit Enhancement Facility’ to reduce the risk associated with corporate bonds and infrastructure financing.
• Public Sector Banks will develop a ‘Grameen Credit Score’ framework to assess the creditworthiness of SHG (Self Help Group) members and people in rural areas. Thus, rural borrowers will be able to access formal banking loans more easily rather than relying on informal moneylenders.
• A forum for regulatory coordination will be set up so that different financial regulators (such as IRDAI, PFRDA, SEBI, and RBI) can work together to develop effective pension products.

Agriculture

• The National Mission on High-Yielding Seeds will be launched to advance research and ensure the commercial availability of over 100 climate-resilient and pest-resistant seed varieties.
• The government will introduce Prime Minister Dhan-Dhaanya Krishi Yojana in 100 low-productivity districts to enhance agricultural output, improve irrigation facilities, and strengthen storage infrastructure.
• A Makhana Board will be established in Bihar to boost the production, processing, and marketing of makhana (fox nuts).
• Sustainable fishing practices will be promoted in India’s Exclusive Economic Zone and High Seas to support marine biodiversity and fisheries.
• A new urea plant in Assam will be set up to enhance domestic urea production and ensure better availability for farmers.
• The Modified Interest Subvention Scheme for Kisan Credit Cards (KCC) loan limit will be raised from ₹3 lakh to ₹5 lakh, offering increased financial support to farmers.
• The Mission for Cotton Productivity will be launched to improve the sustainability and yield of cotton farming.
• The Mission for Aatmanirbharta in Pulses will focus on increasing pulse production and achieving self-sufficiency in the sector.

MSME

• A new classification for MSMEs has been introduced as follows:

Enterprises	Maximum Investment	Maximum Turnover
Micro	₹2.5 crore	₹10 crore
Small	₹25 crore	₹100 crore
Medium	₹125 crore	₹500 crore

• Customized credit cards with a ₹5 lakh limit will be introduced for micro-enterprises registered on the UDYAM portal.
• A new Fund of Funds will be established with an expanded scope and a fresh infusion of ₹10,000 crore to support startups.
• A dedicated scheme will be launched to provide term loans of up to ₹2 crore to women, Scheduled Castes, and Scheduled Tribes entrepreneurs.
• A special scheme will be introduced to boost productivity, quality, and competitiveness in the footwear and leather sector.
• A new scheme will be implemented to promote the development of high-quality, innovative, and sustainable toys, positioning India as a global toy manufacturing hub.
• A National Institute of Food Technology, Entrepreneurship, and Management will be set up in Bihar to strengthen the food processing industry.

Exports

• In addition to the launch of an Export Promotion Mission, BharatTradeNet (BTN) will be established as a unified international trade platform to streamline trade documentation and financing solutions.

Investments Announced

The budget emphasized on strategic investments to drive progress across key areas, including human capital development, economic infrastructure, and technological innovation. Below are some of the major investment announcements across different domains.

People

• Health and Nutrition: Increased allocations to Saksham Anganwadi & Poshan 2.0 schemes to support the nutritional needs of children, pregnant women, and adolescent girls.
• Primary Education: 50,000 Atal Tinkering Labs to be set up along with the provision of broadband connectivity in schools and rural health centers. A Center of Excellence for AI in Education will also be set up.
• Higher Education: Additional infrastructure to be created in 5 IITs that were started after 2014 to facilitate higher education for 6,500 more students. Further, 10,000 more seats will be added in medical colleges and hospitals in the coming year, totaling 75000 seats in the next 5 years.
• Skilling: 5 National Centers of Excellence for Skilling to be set up.
• Gig Workers and Street Vendors: The government will facilitate identity cards, e-Shram portal registration, and healthcare coverage under the PM Jan Arogya Yojana for gig workers. Further, the PM SVANidhi scheme will be revamped to offer enhanced social security benefits to street vendors.

Economy

Various initiatives have been announced to support infrastructure development in the country. These include promoting nuclear energy, urban development, housing, mining, the Western Koshi Canal ERM project, regional air connectivity under UDAN, tourism support, port development, and improved water accessibility under the Jal Jeevan Mission.

Innovation

The government is launching key initiatives to boost research and innovation. For instance, a fund will be launched to support deep tech startups, and fellowships will be provided for advanced research in premier institutes. The government will also support the establishment of a new gene bank, and a national geospatial mission will develop essential mapping infrastructure.

Impact on the Life Insurance Industry

The Budget 2025 has paved the way for significant growth in the life insurance sector.

• Firstly, the increase in FDI limits to 100% is set to bring in global expertise, leading to the introduction of new insurance products and digital transformation. Increased capital infusion will enable insurers to expand their reach, making insurance accessible to all sections of society and boosting insurance penetration across the country.
• Additionally, microinsurance has received a major push. The government has expanded the IPPB (India Post Payments Bank) network through Dak Sevaks, ensuring broader insurance coverage in rural areas.
• Lastly, the increase in the TDS threshold limit for insurance commissions has now enabled agents to take home a larger share of their earnings. It will not only improve their financial stability but also reduce compliance requirements. This will make the profession more attractive to new insurance agents, encouraging more individuals to join and contribute to insurance penetration.

Expected Impact on the Economy

This year’s budget is expected to drive both short-term demand and long-term economic resilience. Below are the expected impacts:

• Higher Disposable Income & Consumption: Tax relief for middle-class taxpayers through revised income tax slabs will increase disposable income and drive higher consumer spending.
• Boost to Infrastructure Growth: Increased capital expenditure on roads, railways, and urban development will stimulate economic activity, create jobs, and improve logistics efficiency.
• Manufacturing Sector Expansion: Incentives under the PLI (Production-Linked Incentive) scheme and reduced import duties on essential raw materials will encourage domestic manufacturing. It will reduce reliance on imports and strengthen India’s position as a global production hub.
• Agricultural & Rural Economy Growth: The expansion of credit facilities for farmers and investments in irrigation and agri-tech will improve rural incomes.
• Strengthened MSMEs & Startups: Enhanced credit guarantee schemes and tax reliefs for MSMEs will improve liquidity, reduce financial stress, and encourage entrepreneurship.
• Human Capital Development: With investments in education, health, and skill development, the budget focuses on building human capital. These measures will improve the quality of the workforce, making it better equipped to handle evolving industry needs.
• Fiscal Deficit Management: While the government continues its capital-intensive push, fiscal prudence through improved tax compliance and divestment strategies is expected to maintain macroeconomic stability.

Conclusion

The 2025 budget sets a strong foundation for economic growth, financial inclusion, and industrial progress. By reducing compliance burdens and simplifying tax structures, it aims to improve the ease of doing business. Increased funding for infrastructure and manufacturing is expected to create more jobs and boost overall productivity. Additionally, the emphasis on innovation signals a forward-looking approach to economic modernization.

At the same time, continuing social welfare programs ensure that growth benefits people across both urban and rural areas. As industries and businesses adapt to these changes, the economic outlook remains optimistic, provided that policies are implemented effectively and can adjust to evolving market conditions.