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Union Budget 2025: Highlights

Presented by Finance Minister Nirmala Sitharaman, the Union Budget 2025 is a blueprint to revolutionise India's economy to ensure inclusivity and growth. The budget focuses heavily on the middle class. It introduces a NIL income tax for individuals earning up to Rs. 12 lakh and salaried individuals receive an additional standard deduction of Rs 75,000/- which make income tax-free up to Rs 12.75 Lakh. Let us understand the highlights of Union Budget 2025 here so you can get all the information in a single place.

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Budget 2025 and Your Life Insurance Needs

Union Budget 2025: Key Highlights, Tax Changes, and Economic Impact

Union Budget 2025: Highlights
March 06, 2025

Table of Content

 

The Union Budget 2025 aims to accelerate growth, promote inclusive development, and encourage private sector investments. In addition, the focus is to improve household sentiments and increase the spending power of India’s middle class. The budget's theme is "Sabka Vikas," which focuses on balanced growth across all regions.

Key Focus Areas and Objectives

Here are some key focus and objectives of Union Budget 2025:

  1. Tax Relief for Low- and Middle-Income Earners: The Budget 2025 brings significant relief for personal income taxpayers. Individuals earning up to Rs. 12 lakh annually will now be exempt from tax, as the rebate increased from Rs. 25,000 to Rs. 60,000.

  2. Support for MSMEs: To strengthen small businesses and enhance economic resilience, the credit guarantee cover for Micro, Small, and Medium Enterprises (MSMEs) has been doubled from Rs. 5 crore to Rs. 10 crore. 

  3. Boost to Manufacturing: The introduction of the National Manufacturing Mission aims to boost India’s ‘Make in India’ initiative. This is to encourage large-scale manufacturing and sustainable production. 

  4. Investment in Research & Development: A budget allocation of Rs. 20,000 crore to implement private-sector-driven R&D and innovation initiatives is set to foster technological advancements and build a stronger innovation ecosystem.

Impact on the Economy and Financial Sector

Here are the significant impacts of the Union Budget 2025 on the economy and financial sector:

  1. Increased FDI in Insurance: The financial sector receives a substantial boost with the Foreign Direct Investment (FDI) limit in insurance being raised from 74% to 100%. This reform is expected to attract higher foreign capital inflows, benefiting major insurance companies. 

  2. Strengthening the Corporate Bond Market: To support infrastructure financing, a Credit Enhancement Facility has been introduced. It aims to boost the corporate bond market and improve credit accessibility for large-scale projects.

  3. Impact on Financial Markets: With enhanced credit availability and streamlined regulatory processes NBFCs and private sector banks to get benefits.

  4. Opportunities for Investment Funds: Mutual funds specialising in banking and financial services are likely to witness increased investor interest. 

Tax Updates of Union Budget 2025

These are some important takeaways from budget 2025 on different types of taxes:

A. Direct Taxation

Here are the key pointers of the effect of Union Budget 2025 on direct tax:

1. Changes in Income Tax Slabs:

The Union Budget 2025 has introduced a revised income tax structure effective from April 1, 2025, for the financial year 2025-26. The new income tax slabs under the New Tax Regime for personal Income Tax reforms with special focus on the middle class are as follows:

Income Tax Slabs

Tax Rate

Up to INR 4,00,000

NIL

INR 4,00,001 - INR 8,00,000

5%

INR 8,00,001 - INR 12,00,000

10%

INR 12,00,001 - INR 16,00,000

15%

INR 16,00,001 - INR 20,00,000

20%

INR 20,00,001 - INR 24,00,000

25%

Above INR 24,00,000

30%

2. Updates on Deductions and Exemptions

  • The basic exemption limit has been raised from Rs. 3 lakh to Rs. 4 lakh, allowing salaried individuals to earn up to Rs. 12.75 lakh to pay no income tax (after claiming rebate and standard deduction of Rs 75,000).

  • The standard deduction has increased from Rs. 50,000 to Rs. 75,000 which offers more relief to salaried individuals.

  • The annual threshold for TDS deduction on rent has been raised from Rs. 2.4 lakh to Rs. 6 lakh.

  • The tax deduction limit under section 194A for senior citizens doubled from Rs 50,000 to Rs. 1 lakh.

3. Capital Gains Tax Modifications

ULIPs: ULIPs not qualifying for Section 10(10D) exemption will be subject to taxation under Capital Gains, with an LTCG tax of 12.5% as per Section 112A

FIIs: The LTCG tax rate on certain securities or capital gains arising from their transfer by way of long-term capital gains, if any, included in the total income, to be taxed at the rate of 12.5 % instead of 10%. 

LTCG: Listed securities held for over a year remain exempt up to Rs. 1.25 lakh, with gains above this taxed at 12.5%.

Unlisted Securities: STCG on unlisted shares and non-financial assets will be taxed as per income tax slabs if sold within two years, while LTCG beyond two years will be taxed at 12.5%. 

B. Indirect Taxation

Here are the key pointers of the effect of Union Budget 2025 on indirect tax:

1. Changes in GST Rates and Structure

Rationalisation of GST Structure: The Budget suggests simplifying the GST tax structure and reviewing the Customs Duty rate structure to expand the tax base and boost domestic manufacturing. 

Retrospective Amendment on Input Tax Credit: A significant change is the introduction of a retrospective amendment regarding input tax credit in Section 17(5)(d), which has been a point of litigation for the past six years. This amendment seeks to clarify the provisions, but it could potentially have unintended consequences for businesses.

2. Custom Duty Revisions

Reduction in Tariff Rates: The government has removed seven customs tariff rates for industrial goods, bringing the total number of tariff slabs down to eight, including a zero rate. This is part of a continued effort to simplify customs duties and address duty inversion, to support domestic manufacturing and enhance exports.

Capping Levies: A proposal has been made to limit levies to a single cess or surcharge per item, aiming to simplify the taxation process. Furthermore, exemptions have been introduced for 82 tariff lines subject to a cess.

Provisional Assessments: The process for provisional assessments under the Customs Act will be simplified. Customs officials will now have the authority to carry out these assessments directly, with a two-year deadline for finalisation, extendable by an additional year in justifiable cases.

3. Excise Duty Updates

Increased Excise Duty on Unblended Diesel: The budget allocates funds for increased excise duties on unblended diesel to encourage the use of cleaner fuels and tackle environmental issues.

Settlement Commission Powers: The powers formerly held by the Settlement Commission for managing pending applications will now be transferred to an Interim Board for Settlement to speed up the resolution process. 

Old Tax Regime vs. New Tax Regime

Let us understand the old and new tax regimes and check their difference:

1. Comparison of Both Tax Regimes

Follow this table to understand the comparison of both tax regimes:

Feature

Old Tax Regime

New Tax Regime

Basic Exemption Limit

Rs. 2.5 lakh

Rs. 4 lakh

Income Tax Rebate Limit

Rs. 5 lakh

Rs. 12 lakh

Standard Deduction (for salaried only)

Rs. 50,000 

Rs. 75,000 

Income Tax Slab Rate

Upto Rs. 2.5 lakh – NIL

Rs. 2.5 - Rs. 5 lakh – 5%

Rs. 5 - Rs. 10 lakh – 20%

Above Rs. 10 lakh – 30%

Upto Rs. 4 lakh – NIL

Rs. 4 - Rs. 8 lakh – 5%

Rs. 8 - Rs. 12 lakh – 10%

Rs. 12 - 16 lakh – 15%

Rs. 16 - Rs. 20 lakh – 20%

Rs. 20 - Rs. 24 Lakh – 25%

Above Rs. 24 lakh – 30%

2. Old Tax Regime

Exemption Limit: The basic exemption limit under the old regime stays the same at Rs. 2.5 lakh. For senior citizens (aged 60-80 years), the limit is Rs. 3 lakh, and for super senior citizens (above 80 years), it is Rs. 5 lakh.

Deductions: Taxpayers who opt for the old tax regime because of significant deductions should re-evaluate their calculations under both systems to make an informed choice. If the total deductions (such as 80C, 80D, HRA, home loan interest, and NPS) exceed a certain threshold, the old regime can be more beneficial.

Benefits: The old tax system still provides opportunities for tax-saving deductions. Taxpayers can claim exemptions for housing rentals and insurance, which are not offered under the new tax regime.

3. Benefits and Drawbacks of Old Tax Regime

Here is a detailed description of the benefits and limitations of the old tax regime:

  • Benefits of the Old Tax Regime

The old tax regime offers significant benefits through multiple exemptions and deductions, which help reduce overall tax liability. Taxpayers can claim deductions on expenses such as home loan interest, medical expenses, education loan interest, and a standard deduction. 

It also supports long-term wealth creation by providing tax benefits on investments in schemes like the Public Provident Fund (PPF), National Pension Scheme (NPS), and Equity-Linked Saving Scheme (ELSS). 

  • Drawbacks of the Old Tax Regime

However, the old tax regime has its drawbacks. Its complex tax structure, which involves navigating numerous exemptions and deductions, can be challenging for taxpayers to understand and comply with. 

Moreover, the regime lacks flexibility once deductions and investments are made. It is difficult to alter the tax plan during the financial year which limits the opportunities to adjust strategies.

4. Benefits and Drawbacks of New Tax Regime

Here is a detailed description of the benefits and limitations of the new tax regime:

  • Advantages of the New Tax Regime

The new tax regime simplifies tax filing with lower tax rates and a streamlined structure that eliminates the need for multiple exemptions and deductions. This makes the process more straightforward and reduces compliance burdens, which benefits taxpayers.

  • Drawbacks of the New Tax Regime

However, the new regime has its limitations. It offers fewer deductions and exemptions, such as the standard deduction and a few others like leave travel concession and tax-free Provident Fund withdrawals. 

It lacks the comprehensive range available under the old system. This reduces the opportunities for tax planning and may not be ideal for individuals looking to maximise their tax savings through strategic investments.

5. Recommendation for Taxpayers

Under the new tax regime, tax rates have been simplified which range from 0% to 30%. The total tax payable, whether with or without deductions for expenses like health insurance, depends on your income source.

Union Budget 2025 tax regime can benefit salaried individuals who utilise all available deductions. Senior citizens can also find the new regime beneficial. The tax exemption limit varies based on your income slab, making it crucial to select the regime that aligns with your specific tax calculations.

Key Takeaways

These are some of the key takeaways from budget 2025:

1. Impact on Salaried Individuals

The 2025 Budget provides significant benefits to salaried individuals by increasing the income tax rebate limit to Rs. 12 lakh which makes incomes up to Rs. 12.75 lakh exempt from tax..

2. Benefits for Senior Citizens and Pensioners

The 2025 Budget strengthens benefits for senior citizens by increasing the TDS threshold on interest income from Rs. 50,000 to Rs. 1,00,000 and raising the rental income exemption limit from Rs. 2.4 lakh to Rs. 6 lakh. In addition, withdrawals from the National Savings Scheme will be tax-free.

3. Support for MSMEs and Startups

The 2025 Budget focuses on boosting MSMEs and startups by improving credit availability and raising the credit guarantee cover for micro and small enterprises to Rs. 10 crore. A credit guarantee cover for Startups raising to Rs. 20 crore 

4. Key Allocations and Expenditures

The government is projected to spend Rs. 50.65 lakh crore in 2025-26, with total receipts estimated at Rs. 34.96 lakh crore. A sum of Rs. 1.72 trillion has been allocated for capital expenditure. The healthcare sector has been allocated Rs. 98,311 crore, while the defence sector will receive Rs. 6.81 trillion.

Fiscal Deficit Target and Borrowing Plans

The fiscal deficit target is set at 4.4% of GDP. Gross market borrowings for FY26 are estimated at Rs. 14.82 lakh crore. The government aims to reduce the fiscal deficit to below 4.5% of GDP by FY26, in line with the Fiscal Responsibility and Budget Management Act.

Sector-Specific Announcements

These are the sector-specific announcements of Budget 2025 you should know:

1. Agriculture and Rural Development

The Rural Prosperity and Resilience Program aims to tackle underemployment by focusing on skilling and technology. The Dhan-Dhaanya Krishi Yojana will strengthen agriculture in 100 districts. 

Plans are also in place for a mission to promote high-yielding seeds and enhance cotton productivity. Furthermore, a program for fruits and vegetables, the establishment of a Makhana Board in Bihar, and sustainable fisheries development are also being introduced.

2. Infrastructure and Real Estate

The central government will offer Rs. 1.5 lakh crore in interest-free loans to states for infrastructure projects. A new asset monetisation plan for 2025-30 is set to raise Rs. 10 lakh crore to finance new developments. 

The UDAN scheme will be revamped to improve regional air connectivity, adding 120 new destinations and serving 4 crore passengers over the next decade. 

3. Education and Skill Development

The 2025 Budget highlights education and skill development with an allocation of Rs. 1,28,650 crore, reflecting a 6.22% increase. 

Key initiatives include setting up 50,000 Atal Tinkering Labs in schools, improving broadband connectivity for rural education, and establishing National Centres of Excellence for Skilling to align educational curricula with industry requirements.

4. Healthcare and Pharma

The Government allocated Rs. 99,858.56 crore to the Health Ministry, reflecting a 2% increase to improve maternal and child healthcare and infrastructure. 

Key initiatives include customs duty exemptions on 36 lifesaving drugs, the establishment of daycare cancer centres in district hospitals, and the promotion of medical tourism through the 'Heal in India' campaign.

5. Technology and Innovation

The 2025 Budget prioritises technology and innovation with several key initiatives. It includes a Rs. 10,000 crore Fund of Funds for startups, increased funding for the AI mission, and the creation of a Deep Tech Fund to support critical technologies. 

In addition, 10,000 fellowships will be offered for research at IITs and IISc, promoting innovation and entrepreneurship in India.

Government Schemes and Welfare Programs

These are some of the important Government and welfare schemes announced in the Budget 2025:

1. New Social Welfare Initiatives

The Department of Social Justice and Empowerment is getting Rs. 13,611 crore which marks a 35.75% increase. Some of the key initiatives include Rs. 2,190 crore for the PM YASASVI scheme to benefit OBCs, EBCs, and Denotified Tribes and Rs. 106.87 crore for the SMILE scheme. Moreover, the Atal Vayo Abhyuday Yojana (AVYAY) for senior citizens is allocated Rs. 289.69 crore.

2. Updates on Existing Schemes

The Budget 2025 updates include the launch of SWAMIH Fund-2 to complete 40,000 housing units for distressed projects. Furthermore, 1 crore gig workers will receive identity cards and healthcare benefits under PM-JAY. The PM SVANidhi scheme will provide enhanced loans to over 68 lakh street vendors.

3. Financial Assistance and Subsidies

In the 2025 Budget, total financial assistance and subsidies are set at Rs. 4,26,216 crore, the lowest in six years. Key allocations include Rs. 2,03,420 crore for food subsidies, Rs. 1,67,887 crore for fertilisers, and Rs. 27,840 crore for interest subsidies.

Economic Growth Projections

In Budget 2025, the Government has shared the economic growth projections:

1. GDP Growth Estimates

The Indian economy is projected to grow between 6.3% and 6.8% in FY26. The government anticipates nominal GDP growth of 10.1%. The fiscal deficit is estimated to be 4.4% of GDP. Total receipts are estimated at Rs. 34.96 lakh crore, while total expenditure is projected at Rs. 50.65 lakh crore. A capital expenditure of Rs. 11.21 lakh crore, or 3.1% of GDP, has been allocated for FY26.

2. Inflation Control Measures

The 2025 Budget aims to tackle inflation through supply-side measures, promoting technology in supply chains, and developing value chains. The Economic Survey 2024 recommends excluding food prices from the inflation targeting framework, focusing on supply-driven solutions instead. Moreover, the RBI has been assigned to keep inflation within the 2-6% range. The Budget 2025 may utilise Direct Benefit Transfers and food coupons to support rural consumption.

3. Foreign Direct Investment (FDI) Policies

The 2025 Budget proposes raising FDI in insurance to 100% for companies that invest the entire premium in India. This will attract foreign players, bring in long-term capital, and create employment opportunities. The government also aims to improve the business environment by introducing an Investment Friendliness Index for states and streamlining regulations. These measures will help to boost investment and increase India's appeal to foreign investors.

4. Employment and Job Creation Plans

The Economic Survey 2025 projects India's GDP to grow between 6.3% and 6.8% in FY26. This Union Budget 2025 highlights skill development as a key strategy to address unemployment and enhance workforce productivity, focusing on quality training and aligning education with industry demands. The Rural Prosperity and Resilience Program aims to combat underemployment through skilling, investment and technology adoption in developing agricultural districts.

Final Words

Budget 2025 emphasises tax reforms, infrastructure development, and support for startups and MSMEs, with a strong focus on agriculture and the growing middle class. Its key highlights include higher tax exemption limits, increased infrastructure investments, incentives for small businesses, and measures to enhance global trade capabilities. 

The government targets a fiscal deficit of 4.4% of GDP for FY26, with plans for asset monetisation to fund new projects. Experts highlight the budget’s commitment to driving economic growth through fiscal and tax reforms, prioritising people and innovation. 

The budget will boost urban consumption, simplify tax compliance, support agriculture and the gig economy. It will also help in sustainable energy development and tourism sectors, giving a positive economic outlook for India.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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NOTE : Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

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