Most of the commentary on Budget 2025 is going to focus on how it’s been a great boon for the middle class. As far as the income tax relief goes, it has lived up to that description to an extent. But a deeper look at the numbers—especially the amount the government expects to earn from income tax—shows that you shouldn’t rest easy: the taxman is still coming for you.
The Budget documents also reveal insights into the government’s thinking on a number of other issues, some of them quite contradictory. For example, it doesn’t expect corporate profits to fare too much better next financial year than they have this year. Yet, it expects the private sector to pick up a substantial portion of the investment burden.
Third, the numbers reveal why exactly there has been no mention of disinvestment in two consecutive budgets now, despite all the fanfare with which the government announced its privatisation policy just a few years ago.
The government expects a revenue hit of Rs 1 lakh crore a year due to the income tax relief it has provided taxpayers—both through the removal of the tax burden for people earning up to Rs 12 lakh a year, and the lowering of rates in a graded manner for those earning more than that.
Yet, the government’s revenue receipts show that it expects income tax revenue to grow by as much as 21 per cent over what it budgeted last year. Even compared to the revised estimates of last year, the income tax revenue is expected to grow by a robust 14.4 per cent. All despite the rate cuts.
Let’s look at it another way. Last October, ThePrint reported that income tax accounted for a little more than 30 per cent of total tax revenues in 2023-24, continuing an increasing trend. As per the latest Budget, this share is set to grow further in 2025-26 to 33 per cent. In other words, for every Rs 100 the government earns from tax, Rs 33 is coming from income tax.
On the one hand, the effective number of income taxpayers has been reduced, since now all those earning up to Rs 12 lakh a year don’t have to pay tax, up from a limit of Rs 7 lakh a year earlier. Those earning above this are also set to pay lower amounts of tax. But on the other hand, the government’s dependence on income tax is only set to increase.
What this effectively means is that the taxman is still going to come for you. Incomes aren’t increasing fast enough to justify this increase in income tax collections the budget expects. What is going to do it is a widening of the tax base, and a likely increase in harassment.
So, expect much greater scrutiny of your tax returns, increased matching of GST data with income tax data, and a general increase in notices being sent to individuals. Of course, the government also expects people to come forward of their own accord to correctly declare their incomes and pay tax, but there’s also an implicit threat if they don’t.
Private sector prospects
On the corporate tax collections front, the government expects only a 6 per cent increase in 2025-26, as compared to what it budgeted for 2024-25. The government does tend to err on the cautious side when it comes to its tax projections, but the current year’s performance shows it might not be cautious enough.
The revised estimates for 2024-25 came in 4 per cent lower than what was budgeted for the year on account of dismal profits in the corporate sector. A 6 per cent increase budgeted this year implies that the government isn’t too upbeat about the private sector’s prospects next year as well.
Nevertheless, the government has indicated that it wants India’s private sector to decisively step up its investments while the government itself increasingly takes a back seat in this push. Over the last few years, since the pandemic, the government has been pumping money into the economy by increasing its capital expenditure by double digits year after year.
This time, it has budgeted a capex increase of less than 1 per cent compared to the budgeted amount of 2024-25. The amount is still a large one in absolute terms: Rs 11.2 lakh crore. But even so, it is clear that the additional impetus to growth is going to have to come from other sources of investment. Namely the private sector.
This is further borne out by the fact that this Budget has revived yet another concept that hasn’t really taken off in India in a big way, that of the Public Private Partnership. The budget has called for each infrastructure ministry to come up with a three-year pipeline of PPP projects, and says that state governments will also be asked to do the same.
The main reason the PPP model hasn’t taken off in the past is because the private sector has considered the risk-reward ratio in such projects to be too skewed towards the risks. Hopefully, the government can address these concerns. But even if it does, it still calls for the active participation of the private sector. So far, they have been unwilling.
Government’s business in business
Finally, we come to the third insight from the budget documents: the burial of the government’s privatisation mission. From last year’s interim budget onward, the government even stopped adding a separate header for disinvestment proceeds. It instead called them ‘miscellaneous capital receipts’.
This amount is estimated to be Rs 47,000 crore in 2025-26, just a little lower than the Rs 50,000 crore budgeted for 2024-25. That is of little comfort because even the 2024-25 figure was revised downwards to Rs 33,000 crore in that year’s revised estimates. It is unlikely the Rs 47,000 crore figure will be met.
The Public Sector Enterprises Policy announced in 2020—under which the government was to exit all non-strategic sectors and maintain a minimum presence in the strategic ones—is effectively dead. And the budget shows why.
Rather than getting rid of these companies, the government wants to retain them, pump money into them, and receive ever-increasing dividends. The budget documents show the government intends to infuse Rs 5 lakh crore as equity and another Rs 9.7 lakh crore as capital expenditure into its CPSEs. This totals Rs 14.7 lakh crore.
The dividend income from these companies is projected to increase 12.4 per cent in 2025-26 to Rs 3.25 lakh crore. This would be nearly double what it earned in 2023-24.
Of course, many will argue that this is a better way to go than selling off the “family jewels”, but it is undeniable that PM Modi’s statement that “the government has no business in business” is yet another discarded mission statement.
TCA Sharad Raghavan is Deputy Editor – Economy at ThePrint. He tweets @SharadRaghavan. Views are personal.
(Edited by Theres Sudeep)