The new structure will significantly enhance the accessibility of the middle class by leaving them with more disposable income.

Finance Minister Nirmala Sitharaman presented her 8th Union Budget 2025 in the Parliament on February 1. Providing a big relief to the middle class, the FM exempted annual income of up to Rs 12 lakh (amounting to Rs 12.75 lakh for salaried taxpayers, including standard deduction) from income tax and also made changes in the tax slabs as part of her reformist Budget. The new structure will significantly enhance the accessibility of the middle class by leaving them with more disposable income, thereby enhancing household consumption, savings, and investment under the new tax regime.

New Tax Slab:

The Finance Minister also announced higher tax exemptions, TDS relief and startup boost in the budget. Key highlights are as follows:

New Income Tax Bill: The Finance Minister announced that the new Income Tax Bill will be introduced next week. The new Income Tax Bill will be clear, direct and simple to understand for both the taxpayers and tax authorities.

Time Limit to update tax returns: The Budget extended the time limit to update the tax return to 4 years. The time limit for the previous year was 2 years. This move will allow taxpayers an extended timeline to scrutinize their returns and file an updated return so that any tax or penal implication arising out of return filed already can be avoided.

TDS Threshold: The number of TDS rates and thresholds will be reduced to streamline compliance. The threshold for Tax Collected at Source (TCS) on remittances under the Liberalized Remittance Scheme (LRS) has been increased from Rs 7 lakh to Rs 10 lakh.

TDS for Senior Citizens: The limit for tax deduction on interest for senior citizens has been doubled from Rs 50,000/- to Rs 1,00,000/-.Annual limit for TDS on rent: The annual limit for TDS on rent has been raised from Rs 2.4 lakh to Rs 6 lakh, benefitting small taxpayers receiving smaller payments.

Fiscal deficit: The Budget emphasized the government’s commitment to managing the fiscal deficit in a way that keeps the Central government debt on a declining trajectory relative to GDP. The revised total expenditure estimate stands at Rs 47.16 lakh crore, with capital expenditure accounting for Rs 10.1 lakh crore. The fiscal deficit for the year is now projected at 4.8% of GDP.

New funds for start-ups: TheFM announced the establishment of a new fund to support startups and empower entrepreneurs. An additional Rs 10,000 crore will be contributed, supplementing the existing government contribution of Rs 10,000 crore. Additionally, a new scheme will be introduced to benefit 5 lakh women and first-time entrepreneurs from the Scheduled Castes and Scheduled Tribes.

Incorporation period for startups: The incorporation period for startups is increased to 5 years.Late payment of TCS: Late payment of TCS will no longer be considered a criminal offense. In the earlier budget late payment of TDS was also decriminalized.

Benefit people owning multiple properties: The FM has relaxed the conditions for tax relief on self-occupied properties in the 2025 Budget. Taxpayers can now claim tax benefits for two self-occupied houses. This reform eases the tax burden for individuals who own and live in multiple properties. The move aligns with the government’s broader focus on financial empowerment and ease of living, strengthening the middle class while simplifying the tax structure.

Customs duty and tariff proposals: In addition to those eliminated in previous budgets, seven more tariff rates will be removed.82 tariff lines currently subject to cess will now be exempt.

Life Saving Drugs: 36 additional medicines for cancer, rare diseases and chronic conditions will be fully exempt from Basic Customs Duty (BCD). Six additional life-saving medicines will have a concessional customs duty of 5%.

Capital goods for EV Battery Manufacturing: TheFM proposed to add 35 additional capital goods used in electric vehicle (EV) manufacturing and 28 additional capital goods for mobile phone battery manufacturing. This will host domestic manufacture of lithium-ion batteries in the nation.

Empower MSME: The government will enhance MSME investment and turnover limits for MSMEs, increasing them by 2.5 times and 2 times respectively. This move is expected to empower MSMEs to scale up, innovate and generate more employment opportunities for the youth.

Expansion in IITs: The FM announced expansion in five IITs starting with IIT Patna. Additional infrastructure will be created in the five IITs started after 2014, education for 6,500 more students, hostel and other infrastructure capacity and IIT Patna will also be expanded.

CONCLUSION: The Union Budget 2025 has come as a saviour for the middle-class taxpayers. The proposed changes in Budget 2025, particularly the potential tax slab revisions and new Income Tax Act, represent the most ambitious phase of reform journey. Additionally, the reformative measures proposed in the Budget are set to propel the Indian economy to a new height.