Decoding Budget 2025: Key Highlights and How Do They Impact You?

Introduction

The unveiling of Decoding Budget 2025 on February 1st marked a pivotal moment in India’s economic strategy, reflecting the government’s commitment to fostering sustainable growth and stability in a dynamically changing global landscape. Decoding Budget 2025 details plans for taxation, infrastructure investment, and sector support. This analysis explores the budget’s key components and explains how they affect individuals, businesses, and the broader economy.

Key Highlights of Decoding Budget 2025

1. Tax Reforms

According to Finance Minister Nirmala Sitharaman’s Budget announcement on February 1, 2025, zero tax liability will apply to income up to 12,00,000, and for salaried individuals, the limit has been increased to 12,75,000. As soon as income crosses these thresholds, the new tax slab will be applicable.

Revised Tax Slabs: Budget 2025 introduces new tax slabs that offer greater relief than last year, aiming to enhance the spending power of the middle-class significantly compared to the previous budget’s modest adjustments.

2. Support for Businesses:

Startups

1. Tax Benefits for Startups

• Extension of Section 80-IAC:
  • The tax benefits under Section 80-IAC have been extended, allowing eligible startups to claim a 100% tax deduction on profits for any three consecutive years within their first ten years of incorporation.
  • The eligibility for these benefits has been extended to startups incorporated before March 31, 2030, increasing the support timeline.
  • The annual turnover limit remains at ₹100 crore, ensuring more startups can qualify for these benefits.

 Enhanced Credit Support for Startups

• Startup Credit Guarantee Limit Increased:
  • The credit guarantee limit for startups has been increased from ₹10 crore to ₹20 crore, allowing easier access to financial support.
  • Exporter MSMEs can now avail term loans up to ₹20 crore for global expansion.

MSME

• MSME Credit Limit Increased:

• • The MSME classification latest criteria, as announced in Budget 2025, include a 2.5 times increase in the investment limit and a doubling of the turnover limit for each MSME category.
  • The Union Budget 2025-26 aims to support MSMEs by increasing the credit guarantee to ₹10 crore, helping new entrepreneurs, and boosting labor-intensive industries.

3. TDS Updates in Budget 2025

4. ITR-U Update in Budget 2025

• The recent update to the Income Tax Return Update (ITRU) framework has extended the permissible time limit for filing an updated return to four years from the end of the relevant assessment year. This enhanced window offers taxpayers greater flexibility in rectifying omissions or inaccuracies in their previously filed returns, promoting accuracy and compliance in tax reporting.

5.  Extension of Time Limit for Imported Goods Usage

The government has announced an extension of the usage period for imported goods, changing the limit from six months to twelve.

6. Kisan Credit Card Expansion: 7.74 Crore Target

Expanding Kisan Credit Cards to 7.74 crore farmers and fishermen is expected to boost agriculture and fishing by providing affordable credit, increasing productivity, promoting financial inclusion, and supporting the rural economy.

7.  Expanding Self-Occupancy Benefits for Property Owners

• The Budget 2025 has brought welcome news for homeowners, particularly those with multiple properties. A significant proposal allows taxpayers to designate up to two houses as self-occupied, eliminating any tax liability on these properties.

This means that individuals can now comfortably own and maintain two homes without the burden of property tax. For those with three properties, the flexibility remains to choose any two as self-occupied, with the third property subject to deemed value calculation for tax purposes.

This move by the government is expected to provide relief to homeowners and potentially stimulate the real estate market.

8. Customs Streamlined: Simplicity Reigns!

• Fewer Tariffs: The number of customs duty rates has been drastically reduced from 15 to just 8, making trade simpler.
• Simplified Charges: Only one additional fee (cess or surcharge) will be applied, and the social welfare charge is gone.
• Cheaper Medicines: Many life-saving drugs and medicines will have no import tax (Basic Customs Duty), and more medicines will have reduced taxes. This includes support for making these medicines within the country.
• Battery Boost: Import taxes will be lowered on materials used to make lithium-ion batteries, which are important for electric vehicles.

9. Boosting Business: KYC, Mergers, and Investment Reforms

• Easier KYC: A new scheme will simplify KYC processes from 2025.
• Streamlined Mergers: Merging companies will face fewer hurdles.
• Attracting Investment: Bilateral investment treaties will be more welcoming to investors.
• Modern Regulations: Regulations are being updated to improve the ease of doing business.
• Investor-Friendly States: A new initiative will promote states that are welcoming to investors.
• Trust-Based Compliance: The government is moving towards a trust-based system for inspections and compliance.

10. Leather Industry Gets a Double Boost!

• Crust Leather Tax Vanishes! The 20% duty on crust leather has been exempted, making it more competitive in the global market.
• Value-Added Leather: Tax-Free Zone! The leather sector now enjoys full exemption for value addition, encouraging local processing and manufacturing.

11. Fiscal Policy Update: Focus on Deficit Reduction

• Fiscal Deficit Target: Maintaining a fiscal deficit of 4.8% of GDP is a key objective. This helps to manage the overall debt level and ensure the long-term sustainability of government finances.
• Revenue and Expenditure: The figures for receipts and expenditure provide insights into the government’s financial position. It’s important to monitor these figures to ensure that the government is on track to meet its fiscal deficit target.
• Economic Growth: Fiscal policy plays a crucial role in supporting economic growth. By managing spending and taxation, the government can stimulate economic activity and create jobs.

12. Investing in India’s Future: Infrastructure, Green Growth, and Business Reforms

Investing in India’s Future: Infrastructure, Green Growth, and Business Reforms

The government is boosting investment across key sectors:

• Infrastructure: A 3-year PPP project pipeline, 50-year interest-free loans to states, a second asset monetization plan, extended Jal Jeevan Mission, an Urban Challenge Fund, and a Maritime Development Fund. Focus on nuclear energy with Small Modular Reactors, revamped shipbuilding policy, UDAN scheme expansion, new and expanded airports, and the Western Koshi Canal project.
• Green Energy: Continued focus on renewable energy, though specific details are awaited.
• Business & Investment: Simplified KYC, easier mergers, more investment-friendly bilateral treaties, updated regulations, a new Investment Friendliness Index for states, higher FDI limit in insurance, credit enhancement facility by NaBFID, Grameen Credit Score framework, pension sector forum, and Jan Vishwas Bill 2.0.
• Other Key Initiatives: SWAMIH Fund 2 for affordable housing, tourism development push, mining sector reforms, and focus on skill development.

13. Boosting Exports: Support for Handicrafts, Leather, Marine, and Railway MROs

The government is taking several steps to promote exports in key sectors:

• Handicrafts: Exporters get more time (up to 1 year + 3 months) and 9 new duty-free inputs.
• Leather: Tax breaks on wet blue and crust leather aim to boost domestic production and support small businesses.
• Marine Products: Lower import taxes on frozen fish paste and fish hydrolysate will make these products more competitive.
• Railway MROs: Extended timelines for repairs of foreign railway goods align with similar rules for aircraft and ships.

Conclusion

These measures in Decoding Budget 2025 show how the government plans to boost economic growth while ensuring sustainable development and social welfare. Each initiative addresses current needs and sets the stage for a stronger future.

FAQs

1. What are the benefits of filing an ITR when no tax is payable?

• Claiming refunds
• Maintaining financial records for loan or visa applications
• Carrying forward or setting off losses
• Avoiding scrutiny by the Income Tax Department

2. Am I required to file an ITR if my income is below ₹12 lakh?
   Yes. You must file an Income Tax Return if your total income exceeds the basic exemption limit of ₹4 lakh, even if your final tax liability is zero.
3. If my salary income exceeds limit of 12,00,000, how much tax am I liable to pay under the both old and new tax slabs?

4. Is there any change in the old tax regime?
   No. The old tax regime is unchanged. You may still choose between the old and new regimes, but the new regime is the default from FY 2023-24 onward.
5. Will the revised tax slabs apply to ITRs for FY 2024-25?
   No. These new slabs apply to income earned in FY 2025-26 (Assessment Year 2026-27). Income for FY 2024-25 remains subject to the previously announced rates.
6. Can I switch between the old and new regimes?

• Salaried Individuals: Yes. You may switch each financial year.
• Business or Professional Income: Once you opt out of the default new regime, you can only switch back once. After reverting to the new regime, you cannot move to the old regime again.

7. Do I have to file any forms to change between both the tax regimes?

Yes, if you have income from a business or profession and wish to opt out of the new tax regime and choose the old tax regime, you must file Form 10-IEA before ITR Filing. This form declares your intention to revert to the old tax regime and is a necessary step in the process. It’s crucial to file this form correctly and within the applicable deadlines to ensure your tax regime selection is properly recorded.

8. What is ITR-U and has government introduced any provisions for the same in the new budget?

ITR-U allows taxpayers to rectify errors or omissions from the original filing and file the tax return if someone has missed the time limit of filing the return.

Yes, the time limit to file an updated return u/s 139 (8A) is extended to 4 years from 2 years starting April 2025 (as announced in budget 2025-26) from the end of the relevant assessment year.

9. 9. Are there any changes to TDS or TCS rules for e-commerce transactions under Budget 2025-26?

Budget 2025-26 continues to emphasize digital and e-commerce platforms, introducing minor adjustments to TDS and TCS rates to enhance tax compliance in online transactions. Further guidance may be released by the Ministry of Finance, so it’s important for taxpayers and businesses to monitor official notifications for detailed compliance requirements.

10. What is the key difference between a tax rebate and marginal relief?

A rebate reduces the tax owed for taxpayers with incomes up to ₹12 lakhs in the new regime. Marginal relief ensures that taxpayers with incomes slightly above ₹12 lakhs don’t pay more tax than the amount their income exceeds by ₹12 lakhs.

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