Union Budget 2025: Tax Cuts, Growth Push & Missed Reforms – A Game Changer or a Gamble?

03 Feb 2025

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, introduces significant changes aimed at stimulating economic growth and providing relief to various sectors of society.

Taxation Reforms

• One of the most notable changes is the increase in the income tax exemption limit under the new tax regime. Individuals with annual incomes up to ₹12 lakh will now be exempt from paying income tax.
• For incomes above this threshold, revised tax slabs have been introduced. It's important to note that the tax rates under the old tax regime remain unchanged.
• Additionally, the limit for Tax Deducted at Source (TDS) on interest for senior citizens has been doubled from ₹50,000 to ₹1 lakh, and the annual limit for TDS on rent has been increased from ₹2.4 lakh to ₹6 lakh.
• Withdrawals made from the National Savings Scheme by individuals on or after August 29, 2024, will also be exempt from tax.
• Furthermore, the deadline to file updated income tax returns has been extended from two to four years. A new Income Tax Bill is expected to be introduced shortly, aiming to simplify the tax regime and reduce compliance burdens.

Agricultural Initiatives

The budget places a strong emphasis on the agricultural sector. The Prime Minister Dhan-Dhaanya Krishi Yojana has been launched to enhance agricultural productivity and support farmers.

Short-term loans with enhanced limits of up to ₹5 lakh will be facilitated for 7.7 crore farmers, fishermen, and dairy farmers. A six-year mission focusing on pulses, particularly Tur, Urad, and Masoor, aims to achieve self-reliance in their production. Additionally, a Makhana Board will be established in Bihar to promote the cultivation and marketing of makhana.

Investment in Science and Innovation

To foster research and development, the government has allocated ₹20,000 crore for a private sector-driven initiative. The Prime Minister Research Fellowship will provide 10,000 fellowships for technological research in IITs and IISc.

Moreover, a second Gene Bank, housing 10 lakh germplasm lines, will be established to ensure future food and nutritional security.

Export Promotion Measures

• The budget introduces several measures to boost exports. Exemptions will be granted for open cells used in LED/LCD TVs, looms for textiles, and capital goods for lithium-ion batteries used in mobile phones and electric vehicles.
• A 10-year exemption will be provided on goods used for shipbuilding and ships meant for breaking.
• The time limit for the export of railway goods imported for repairs will be extended.
• Trade facilitation measures include setting time limits for the finalization of provisional assessments and allowing voluntary declarations of material facts after clearance and duty payment, with interest but without penalty.
• Wet blue leather will be fully exempted from basic customs duties to promote domestic consumption and enhance exports.

Economic Outlook

While the budget introduces measures to stimulate growth, concerns have been raised about the reduction in capital spending and infrastructure investment. Analysts note the absence of significant reforms in areas such as agricultural markets, labor laws, and business regulations, which are essential for achieving higher growth rates.

The projected GDP growth is expected to decline to 6.4% from the previous 8.2%. The budget's focus on short-term relief, such as tax cuts for the middle class, has led to apprehensions about potential economic stagnation and reduced investor confidence.

In summary, the Union Budget 2025 introduces significant tax reforms and sector-specific initiatives aimed at stimulating economic growth and providing relief to various segments of society. However, the reduction in capital spending and the absence of substantial structural reforms have raised concerns about the long-term economic outlook.

 

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Written by: Tanish Goswami

To get in touch, write to tanish.goswami@investocafe.com or reach through www.investocafe.com.

 

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