Budget 2025: Key Highlights and What They Mean for You

The 2025 Union Budget, presented by Finance Minister Nirmala Sitharaman, is a crucial document outlining India’s economic priorities for the coming fiscal year. As the first full budget of Prime Minister Modi’s third term, it holds significant weight, particularly given the current global economic climate. This year’s budget focuses on several key areas, from substantial investments in infrastructure and a push for advancements in Artificial Intelligence, to potential reforms in the tax system and continued focus on urban development. Join us as we break down the major announcements and analyze their potential impact on the Indian economy.

Major Income Tax Reforms: Relief for Middle-Class Taxpayers

One of the biggest takeaways from Budget 2025 is the significant relief for individual taxpayers. The government has introduced new income tax slabs, higher exemptions, and rationalized TDS and TCS structures.

New Tax Slabs:

• Up to Rs 4 lakh – No tax
• Rs 4 lakh – Rs 8 lakh – 5%
• Rs 8 lakh – Rs 12 lakh – 10%
• Rs 12 lakh – Rs 16 lakh – 15%
• Rs 16 lakh – Rs 20 lakh – 20%
• Rs 20 lakh – Rs 24 lakh – 25%
• Above Rs 24 lakh – 30%

Key Highlights:

• No tax for individuals earning up to Rs 12 lakh per year.
• Due to a ₹75,000 standard deduction, individuals with annual incomes up to ₹12.75 lakh will have no income tax burden.
• Taxpayers earning Rs 25 lakh will get a benefit of Rs 1.1 lakh.
• Estimated revenue loss of Rs 1 lakh crore in direct taxes and Rs 2,600 crore in indirect taxes.
• Time limit to file updated tax returns extended from 2 years to 4 years.
• Relief for startups: The eligibility period to avail tax benefits extended by five years.

A Relief for Global Investors: Changes in the TCS Regime

One of the most notable updates is the increase in the Tax Collected at Source (TCS) threshold for foreign remittances. Previously set at ₹7 lakh, the threshold has now been raised to ₹10 lakh. This means individuals sending money abroad—whether for education, travel, medical expenses, or investments—will now face TCS deductions only if their total remittance exceeds ₹10 lakh in a financial year. However, the applicable TCS rates remain unchanged:

• 5% for education and medical expenses.
• 20% for foreign investments and overseas travel.

Additionally, the government has proposed removing TCS on remittances made for education purposes when the funds are sourced from a loan provided by a specified financial institution.

By raising this limit, the government aims to ease tax compliance on smaller transactions while maintaining oversight on higher-value remittances.

Key Changes in TDS and TCS

In addition to the rate changes, the government has increased the thresholds for TDS and TCS across several key sections. Here’s a summary of the updated thresholds:These threshold increases mean that individuals and businesses will face fewer TDS and TCS obligations on smaller transactions, reducing the compliance burden.

1. Rent Payments:
   • The annual threshold for TDS on rent payments has been raised from ₹2.4 lakh to ₹6 lakh. Tenants will now need to deduct TDS if the rent exceeds ₹50,000 per month (previously ₹20,000 per month). This change reduces the number of small taxpayers caught up in TDS compliance for relatively smaller payments.
2. Remittances:
   • The Liberalised Remittance Scheme (LRS), which allows Indian residents to send money abroad, now has a higher TCS threshold. The limit has been increased from ₹7 lakh to ₹10 lakh, meaning individuals will only be liable to pay TCS if their remittance exceeds ₹10 lakh. The government has also removed the TCS on educational remittances financed by loans, which benefits students and their families.
3. Senior Citizens:
   • Senior citizens, who often rely on interest income, benefit from an increase in the tax-free interest limit. The tax-free interest limit has been doubled from ₹50,000 to ₹1 lakh, providing greater relief to retirees dependent on savings accounts or fixed deposits.
4. Higher Education:
   • The government has relaxed TCS for remittances used for higher education, provided the payment is made from a loan taken from a financial institution. Additionally, higher TDS rates will only apply to individuals who do not have a Permanent Account Number (PAN), making compliance easier.
5. Sale of Goods:
   • TCS on transactions involving the sale of goods has been removed. Currently, both TDS and TCS applied to these transactions, creating a dual tax burden. This change aims to simplify compliance for businesses.
6. Decriminalization of TCS Delays:
   • In July 2024, the government decriminalized the penalty for delays in TDS payments if the delay occurred before the due date for filing statements. This relaxation has now been extended to TCS provisions, offering businesses more flexibility and fewer penalties.

New Thresholds for TDS and TCS

Rationalization of TDS and TCS Rates

To reduce the compliance burden, the Finance Minister has proposed rationalizing several TDS and TCS rates. Below are some key changes:

• Section 194LBC (Securitization Trust Income):
  • The TDS rate has been reduced from 25% (for individuals) and 30% (for others) to 10%. This simplification will benefit both individuals and entities involved in securitization trusts.
• Section 206C (TCS on Timber):
  • The TCS rate for timber and other forest products has been reduced from 2.5% to 2%, which is a small but important reduction for forest-based industries.
• Section 206C (TCS on Educational Remittances):
  • The TCS rate for remittances related to education loans has been removed (previously 0.5% after ₹7 lakh), providing relief to students paying for their education abroad.

The TDS and TCS reforms in Budget 2025 are aimed at simplifying the tax system by increasing thresholds, rationalizing rates, and removing unnecessary compliance steps. These changes will benefit a wide range of taxpayers—from senior citizens to students, tenants, and businesses—by reducing the tax burden and administrative complexity.

Customs Duty Adjustments: Supporting Local Manufacturing

To boost domestic industries and reduce dependency on imports, the Budget has introduced several changes in customs duties:

• Basic Customs Duty (BCD) on flat panel displays increased from 10% to 20%.
• 36 life-saving drugs added to the duty exemption list.
• 12 critical minerals exempted from BCD to encourage domestic production.
• Capital goods for EV manufacturing included in the BCD exemption list.
• Open-cell customs duty reduced to 5%.

4. Infrastructure and Regional Development: Big Push for Growth

The government has significantly increased capital expenditure to bolster infrastructure projects across India. The revised capital outlay for FY25 stands at Rs 10.18 lakh crore, with a strong focus on energy, transport, and regional development.

Key announcements:

• Aiming for 100 GW of nuclear energy capacity by 2047.
• Nuclear Energy Mission launched with an allocation of Rs 20,000 crore for R&D in small modular reactors.
• Maritime Development Fund of Rs 25,000 crore to support shipbuilding.
• Modified Udaan Scheme to connect 120 new domestic destinations.
• Greenfield airports to be developed in Bihar.
• Western Kosi Canal project in Bihar receives financial backing.

Boost for Education, Healthcare, and Social Welfare

• Broadband connectivity for all government secondary schools and primary healthcare centres.
• Five National Centers of Excellence for Skilling to boost vocational education.
• Three AI Centers of Excellence with an outlay of Rs 500 crore.
• 10,000 additional medical college seats to be added.
• Day-care cancer centres in every district, with 200 centres planned for 2025-26.
• Social security scheme for gig workers, integrating e-Shram portal registration and insurance.

Fiscal Deficit and Borrowing Plans

The fiscal deficit for FY25 is estimated at 4.8% of GDP, with a target to bring it down to 4.4% in FY26. The government has projected net tax receipts for FY26 at Rs 28.37 lakh crore, while gross market borrowing is pegged at Rs 14.82 lakh crore.

Financial and Regulatory Reforms

• Insurance FDI limit increased from 74% to 100%, encouraging foreign investments.
• A new Income Tax Bill to be introduced next week, aiming to simplify taxation further.
• Central KYC Registry to be implemented in 2025 for better financial compliance.

Tourism and Innovation: A New Growth Avenue

To boost tourism and innovation, the Budget lays out several initiatives:

• Development of top 50 tourist destinations in partnership with states.
• Mudra loans for homestay businesses to promote local tourism.
• Focus on medical tourism under the “Heal-in-India” initiative.
• Deeptech fund-of-funds to support emerging startups.
• Launch of National Geospatial Mission for better spatial data management.

What Does This Budget Mean for You?

Budget 2025 brings substantial tax relief, infrastructure spending, and sectoral reforms that impact individuals and businesses alike. With higher income tax exemptions, increased thresholds for foreign remittances, and stronger financial regulation, the government aims to provide stability while driving growth. On the other hand, higher fiscal deficit projections and increased market borrowing indicate that the government is banking on long-term economic expansion to balance the books.

As always, the devil lies in the details, and the coming months will reveal how these measures translate into real economic impact. For now, taxpayers, businesses, and investors have a lot to look forward to in the year ahead.