Budget 2025 unleashed by the Modi 3.0 government is an inclusive budget aiming to unlock India’s potential to help it march forward in its journey towards becoming “Viksit Bharat”. The Budget focuses on accelerating growth, promoting infrastructure, inclusive development, strengthening private sector investments, uplifting household sentiment and enhancing spending power of the middle class to boost consumption.
The Budget is structured around four engines of growth: Agriculture, MSMEs, Investment and Exports and transformative reforms across six domains i) Taxation, ii) Power Sector iii) Urban Development, iv) Mining, v) Financial Sector and vi) Regulatory Reforms.
On the income tax front, the finance minister made an announcement of the proposed introduction of a new Income Tax Bill which will simplify the existing Income-tax Act with a view to reduce tax disputes and provide certainty to taxpayers.
On the personal tax front, the finance minister gave bonanza to the middle-class taxpayers by significantly enhancing the tax rebate under the New Tax regime, whereby taxpayers will have to pay no tax if their income does not exceed Rs 12 lakhs (Rs 12.75 lakhs in the case of salaried taxpayers). Apart from that, there is a rationalization of tax slabs in the new Tax regime, with the basic tax slab getting enhanced from Rs 3 lakhs to Rs 4 lakhs and the peak tax rate of 30% becoming applicable to income in excess of Rs 24 lakhs, as compared to Rs 15 lakhs which is currently applicable. These measures will promote more liquidity, thereby boosting household consumption, savings, investment and uplift in the overall sentiment of the “Madhyam Varg”.
The Budget also focuses on rationalizing the compliance burden on taxpayers by rationalizing the TDS and TCS regime, including enhancing the threshold limit for applicability of TDS to different categories of transactions, decriminalisation of TCS default and omission of TCS on sale of specified goods.
On the Transfer Pricing front, an innovative concept for determination of arm’s length price for a block period of 3 years is proposed to be introduced. Also, the much-expected scope of safe harbour provisions is proposed to be expanded. This will help mitigate Transfer Pricing disputes in India and provide certainty to MNCs.
Other tax amendments focus on increasing voluntary tax compliance by extending the time limit to file updated tax returns until 4 years, extending the sunset date for providing tax holiday to eligible startups by five more years, introduction of anti-abuse provisions for plugging the evergreening of carry-forward of losses on amalgamation, promotion of fast track mergers, introducing compliance obligations for crypto assets and providing relief in respect of Basic customs duty rates for prescribed drugs, medicines, critical minerals etc. A host of amendments are proposed to make the IFSC regime in GIFT City more attractive. Also, the sunset date for investment by Sovereign Wealth Funds and Pension Funds has been extended to 31 March 2030.
A few key tax expectations which did not find mention in the Budget include implementation of the OECD’s BEPS 2.0 - Global Minimum Tax in India, extension of the sunset date for concessional tax regime for new manufacturing companies, lowering of tax rate for LLPs, re-introduction of weighted deduction for R&D spends and a clear roadmap to deal with the significant backlog of cases pending adjudication with the appellate authorities.
On an overall basis, Budget 2025 is a forward - thinking budget to facilitate India’s vision of becoming a USD 5 trillion economy by 2027 and a developed nation by 2047. However, it’s success will hinge on the collaborative efforts of the central government, state government and the private sector on various reforms.
A version of this article was published by The Financial Express Online on February 03 2025. The same can be read here
