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Know Union Budget 2025 insights, including consumption-boosting measures, infrastructure investments, income tax relaxation, fiscal consolidation, and economic growth strategies.
In order to push consumption in the economy, the government might also announce some relaxation in the income tax rates or slabs in the upcoming Union Budget 2025-26.
Even as Finance Minister Nirmala Sitharaman is set to present the Union Budget 2025 in Lok Sabha on February 1, economists expect the budget to boost consumption and push the demand cycle in the economy. The demand remains the key talking point of this budget as it comes at a time when the Indian economy in the latest September 2024 quarter hit its nearly two-year low of 5.4 per cent.
“In the backdrop of a slowdown in domestic urban consumption and investment activity in FY2025, the Union Budget for FY2026 is likely to focus on the revival of these drivers to support the growth momentum,” rating agency ICRA said in its report on the upcoming Union Budget 2025-26.
ICRA anticipates healthy allocation towards infrastructure sectors, including roads, highways, and railways, as well as interest-free capex loans to states, ICRA stated.
Consumption in the past few months has taken a beating as first suggested by the corporate earnings in Q2, which pointed to a sharp fall in demand in the urban areas. The latest Q3 earnings are also not point to any recovery in demand in the economy.
Last week, Hindustan Unilever Ltd, which is the biggest FMCG company in the country, while announcing its Q3 earnings said the December 2024 quarter was under the cloud of subdued consumption climate, characterised by moderating urban growth and a slower recovery in rural demand. It posted a flat volumes that led it to post a tepid 1.6 per cent growth in revenue at Rs 15,818 crore.
On the expected measures in the Budget 2025, brokerage firm Nirmal Bang said, “We are likely to see continued emphasis on the ‘missing middle’ with focus on sectors like skill development and affordable housing. A scheme for urban job creation along the lines of the MGNREGS apart from the direct benefits will help support urban wage growth across sectors. Increased allocation under PM Awas Yojana for affordable housing, and increase in tax exemption limits on interest payments on housing loans are possibilities.”
Income Tax Relaxation Likely
In order to push consumption in the economy, the government might also announce some relaxation in the income tax rates or slabs in the upcoming Union Budget 2025-26.
According to a report jointly prepared by CBDT’s former chairman J B Mohapatra and GTRI founder Ajay Srivastava, the Union Budget 2025 offers a chance to calibrate India’s current direct tax system to match current economic needs, including responding to the stress on middle-income taxpayers.
Among other steps, the report said the Budget 2025 should raise the income tax exemption threshold to Rs 5.7 lakh to match inflation, simplify the TDS system, and equalise tax treatment for bank deposits and equities.
According to reports, the government might make the new tax regime further attractive, thus encouraging taxpayers to go for the system that offers lower tax rates but significantly fewer deductions.
The Budget 2025 might increase the standard deduction limit under the new tax regime to Rs 1 lakh, from the current 75,000.
The central government is also likely to cut income tax for individuals earning up to Rs 15 lakh per annum in the upcoming Budget 2025-26, according to Reuters.
The government is likely to introduce the new income tax bill in the upcoming budget session 2025 of Parliament.
FM Nirmala Sitharaman in the last Budget 2024-25 in July announced a comprehensive review of the Income Tax Act. Following this, the review committee was constituted led by Chief Commissioner of Income Tax V K Gupta.
Fiscal Consolidation
ICRA in its report said the Budget is expected to adhere to fiscal consolidation, with the fiscal deficit target for FY2026 expected to be at 4.5 per cent of GDP. This is lower as against the projected 4.8 per cent of GDP in FY2025 (vs budgeted target of 4.9 per cent).
“The sharp shortfall expected in the Centre’s capex (capital expenditure) in FY2025 (Rs 9.7 lakh crore) vis-à-vis the Revised Budget Estimate (Rs 11.1 lakh crore) provides sufficient fiscal space to enhance capital spending by 12-13 per cent YoY to Rs 11 lakh crore in FY2026,” it added.
Nirmal Bang expects divestment revenue of Rs 20,000 crore in FY25 and a target of Rs 50,000 crore in FY26. It is against the divestment revenue of Rs 8,625 crore in FY25 so far, which is significantly lower than the budget target of Rs 50,000 crore.
