Finance Minister Nirmala Sitharaman marked a historic milestone by presenting her eighth consecutive Union Budget 2025. This Budget sets the stage for a fiscal year that promises sweeping changes designed to reshape our economy and strengthen the foundation of our nation’s growth.
There is a clearly stated objective to serve taxpayers and to ‘trust first and scrutinise later’. This will form the essential basis of the soon-to-be-introduced income tax Bill. The income tax Bill is the result of the hard work of the High-Level Committee (as supported by an army of tax officers)—such an initiative demonstrates the government’s commitment to maintaining a dynamic and growth-centric economic policy framework.
The forthcoming income tax Bill could be a revolutionary step to open a new chapter in India’s fiscal narrative. It is poised to demystify the tax process, encouraging greater compliance through its clarity and simplicity. The Finance Minister’s commitment to the principle of Nyaya—justice—is evident in the legislation.
A significant highlight of the Budget is the progressive tax reform, which is set to empower the middle class — the cornerstone of our nation’s economic prosperity. This reform is not just a financial recalibration; it is a statement of faith in the democratic, demographic, and demand-driven pillars that support our vision of a ‘Viksit Bharat’ or Developed India.
A radical move
In a move that acknowledges the middle class’s vital role in nation-building, the Budget has announced a complete income tax exemption for annual income up to Rs 12 Lakh, barring special rate incomes such as capital gains. This recalibration of tax slabs is expected to invigorate the economy by enhancing the financial capacity of individuals and families, thereby stimulating consumption, savings, and investment.
With this unexpected radical move, the so-called Old Tax Regime (for personal tax) gets significantly diluted or shall we say redundant (the data seems to suggest only 25 per cent of the taxpayers are currently under the Old Tax Regime).
Interestingly, the gap between slab rates is standardised at 25 per cent with a 5 per cent incremental tax at every level. The topmost slab being taxed at 30 per cent moves upward from Rs 15 Lakh to Rs 24 Lakh.
Having said that, the anticipated impact on taxpayer numbers is significant. Basis published information, 4.90 crore tax filers (out of 8.09 crore total tax filers) are filing NIL tax returns, we expect an increase in the number of taxpayers filing NIL returns (which may be upward of another 1 crore. This is clearly reflected in a tax foregone of approximately Rs 1 lakh crore in direct taxes.
It’s interesting to note that the exercise is indeed a reform and not just a tinkering. For example, there is a corresponding increase in the TCS threshold for remittances under the RBI’s Liberalised Remittance Scheme, which has been raised from Rs 7 lakh to Rs 10 lakh. It’s a holistic exercise. Additionally, Unit Linked Insurance Plans with annual premiums exceeding Rs 2.5 lakh will now be subject to capital gains tax (which is a beneficial move from a long-term tax rate perspective), aligning them with the taxation of equity mutual funds.
Homeowners will benefit from the simplification of tax declarations with the removal of restrictions on designating two properties as self-occupied. The Budget also brings adjustments to TDS and TCS regulations, including a reduction of TDS on insurance agents’ commissions from 5 per cent to 2 per cent, and an increase in the TDS threshold on interest for senior citizens to Rs 1 lakh.
In a strategic move to bolster the electronics manufacturing sector, non-residents providing services or technology to Indian firms under government schemes will enjoy a simplified presumptive tax at 25 per cent.
Foreign Institutional Investors and select funds will now be subject to a capital gains tax of 12.5 per cent, putting them on par with domestic investors. The government has also clarified that the Significant Economic Presence (SEP) rule will not apply to foreign exporters to India when purchasing goods solely for export.
To further stimulate economic growth, the government has proposed a five-year tax benefit extension for startups incorporated before 1 April 2030, and an extension of tax incentives for IFSC units until 31 March 2030 (this will promote India as Financial Hub).
Additionally, exemptions previously exclusive to aircraft leasing have been extended to ship leasing units within the IFSC, signalling a potential boost for the maritime leasing industry. Shipping, which has been a neglected sector now finds significant prominence with various incentives for Ship Building, Maritime Fund, Coastal Shipping and allowing vessels under Indian Vessels Act to be eligible for Tonnage Tax Scheme.
While the recent fiscal measures have infused optimism across various sectors, the manufacturing industry faces uncertainty due to the absence of an extension for the 15 per cent corporate tax rate incentive. This is clearly a miss.
In summary, the Finance Bill 2025, embodies the government’s dedication to stabilising the tax regime and making strategic refinements to attract investment, particularly in the IFSC and startup ecosystems. The rationalisation of trust compliance, TDS rates, etc is aligned with the goal of simplifying the tax structure, reducing litigation, and fostering long-term investment. These amendments are poised to provide clarity, ease compliance burdens, and enhance the efficiency of the tax administration system, marking a significant step forward in our nation’s economic evolution.
The author is a Tax Partner at EY India. Seema Choudhary and Sandeep Raghavan, Senior tax professionals EY India, have also contributed to the article. Views are personal.
(Edited by Theres Sudeep)