The budget revolves around consumption, common man, continuity, convenience and conservatism to achieve 10.1 percent nominal GDP.
Published Feb 02, 2025 | 9:00 AM ⚊ Updated Feb 02, 2025 | 10:06 AM
Finance Minister Nirmala Sitharaman
Finance Minister Nirmala Sitaraman’s record eighth consecutive budget can be termed as a ‘middle-class bonanza’ with a focus on consumption. The budget focus has been shifted for the first time from growth via capital expenditure (CAPEX)/investment to consumption-centric.
In fact, CAPEX spent in the present financial year (2024-25) has been revised downwards to ₹10.18 lakh crore by keeping allocation for FY26 (2025-26) at ₹11.2 lakh crore, which is almost the same as the initial budget allocation of ₹11.11 lakh crore for FY25. However, government CAPEX will continue in critical sectors.
It is all the more creditable that the FM has stuck to fiscal prudence and consolidation by not only adhering to the fiscal deficit target of 4.8 percent for FY25 but with the stiff target of 4.4 percent of GDP for FY26.
The big push to boost consumption is bestowed on the ‘middle class’ by way of income tax cuts and rebates. This is not only historic but transformational. Both the income tax slabs and the tax rates have been revised to give huge benefits to the common man.
In the revised tax changes, there will be absolutely no tax on income up to ₹12 lakhs per annum, and for the salaried class, this limit will get pushed to ₹12.75 lakhs per annum with the standard deduction of ₹75000. This slab between ₹10-12 lakhs income is at 15 percent for the present financial year.
The 20 percent rate slab will be for ₹16-20 lakhs per annum (earlier ₹12-15 lakhs), 25 percent for income earners between ₹20-24 lakhs and 30 percent for above ₹24 lakhs, which is uniform 30 percent above ₹15 lakhs per annum income for the present financial year ending 31 March 2025.
The revision and the benefits will apply only for people who opt for and will be filing the Income Tax (IT) returns as per the new regime. The FM, by according the above tax benefits, envisages huge disposable income with the middle class who in turn will be utilising the surplus money in their pockets for consumption.
This virtuous cycle of income, and consumption via multiplier effect will trigger the animal spirits of demand, which in turn will accelerate the private CAPEX, which is still nascent.
With the IT rebates and the benefits, the disposable income with the people will range from ₹80000 to ₹110000 per annum, which will drive the engine of the consumption story.
This comes at a cost. The revenue foregone to appease and redress the miseries of the middle class translates to ₹1 lakh crore by way of direct taxes and ₹2600 crore indirect taxes.
The message of the budget is loud and clear. Going forward, the growth story of India will be via the consumption route coupled with heavy lifting to be done by the private sector.
The FM has addressed the pain points of senior citizens too and owners who have two houses. Tax deduction at source (TDS) for senior citizens has been increased by 100 percent from ₹50000 to ₹1 lakh.
Tax exemption has been provided on withdrawals made from the National Savings Scheme by individuals on or after 29 August 2024.
For property owners of two self-occupied units, taxpayers are allowed to claim NIL annual value without any conditions/riders. The annual threshold limit of ₹2.4 lakhs for ‘TDS on rent’ has been increased to ₹6 lakhs – again with the idea that the savings from these benefits will flow to consumption and will also promote rental housing.
To address the woes of six crore Micro, Small and Medium Enterprises (MSMEs), of which one crore are registered, the finance minister has proposed enhancement of credit flow with guarantee cover to significant levels.
The credit guarantee cover has been raised to ₹10 crore from the current ₹5 crore, the guarantee to startups from ₹10 crore to ₹20 crore, and for exporter MSMEs the credit guarantee cover for term loans up to ₹30 crore.
Many MSMEs were not getting elevated from their classification criteria to avail of certain benefits and in the absence of credit guarantees. To bolster their confidence and to enable MSMEs to grow as a ‘global manufacturing hub’ in the backdrop of the US Trump administration tariff threat and the ‘dumping’ effect by China, the classification criteria for MSMEs itself has been revised – both investment and turnover.
Micro enterprises from investment criteria from current ₹1 crore to ₹2.5 crore and turnover revised to ₹10 crore from the present ₹5 crore.
Similarly, the investment and turnover criteria have been revised for small enterprises from ₹10 crore to 25 crore, ₹50 to ₹100 crore (turnover) and for medium enterprises from ₹50 crore to ₹125 crore (investment) and ₹250 crore to ₹500 crore (turnover). This will boost the critical sector which is contributing 36 percent to the manufacturing GDP, 45 percent to exports, employs around eight crore labour force and facilitate MSMEs to get bank loans at reduced rates.
To revive stalled projects and to promote housing where the aggrieved middle-class families are paying not only EMIs on home loans but also paying rent for their present dwelling houses with associated mental trauma, Nirmala Sitaraman announced the second tranche of Special Window for Affordable and Mid-Income Housing (SWAMIH) fund of ₹15000 crore for completion of one lakh dwelling units, out of which 40000 units will be completed in 2025.
The budget has not directly addressed the wish list of the real estate sector including increasing the ceiling limits for rebate u/S 80C for housing loan EMIs, increasing limit u/S 80EEA, deduction under interest paid for housing loans from ₹2 lakhs to ₹4 lakhs u/S 24/24b. No mention regarding the continuation of tax holidays for builders who undertake Affordable Housing Projects (AHPs) u/S 80IBA.
The idea behind not granting these rebates is to gradually nudge people to migrate from the old IT regime to the new one.
Through the IT sops and initiatives announced to promote MSMEs, the agriculture sector, MUDRA loans to homestays, fand inancial assistance to women entrepreneurs, the FM has passed on the baton to the RBI/Monetary Policy Committee (MPC) to reduce the repo rate by at least 25 bps from the present 6.5 percent (unchanged since February 2023) to facilitate individuals, MSMEs and corporates to avail loans at reduced rates to promote faster economic growth which will complement the fiscal initiatives.
In summary, the 5Cs around which the budget 2025 revolves are – consumption, common man, continuity, convenience and conservatism to achieve 10.1 percent nominal GDP, without compromising on the fiscal glide path.
(Edited by Dese Gowda)
