'Government has put money back in hands of people': Nirmala Sitharaman on tax reductions

Addressing a press conference hours after she presented the Union Budget at the Parliament, Union Finance Minister Nirmala Sitharaman said the tax reductions were aimed at the middle class.
Union Finance Minister Nirmala Sitharaman upon her arrival at the Parliament House complex to present the Union Budget 2025-26, in New Delhi, Saturday, Feb. 1, 2025.
Union Finance Minister Nirmala Sitharaman upon her arrival at the Parliament House complex to present the Union Budget 2025-26, in New Delhi, Saturday, Feb. 1, 2025.(Photo | PTI)
Updated on
3 min read

MUMBAI: The government has decided to give people "their own money back" by raising the income tax exemption limit to Rs 12 lakh from the next fiscal, up from the current Rs 7 lakh. This move will take 1 crore taxpayers out of the tax net, resulting in a tax loss of Rs 1 trillion.

"We’ve listened to the voice of the people, including farmers and small businesses, because we’re a responsible government, and therefore have decided to give the people back their own money by hiking the income tax exemption limit to Rs 12 lakh from the next fiscal, from Rs 7 lakh now, which involves tax foregone to the tune of Rs 1 trillion as 1 crore taxpayers will be out of the tax net," Finance Minister Nirmala Sitharaman said, explaining the rationale behind the decision.

The new exemption applies only to those who opt for the new income tax regime, which does not allow for any deductions. Currently, 75 per cent of total taxpayers have moved into the new tax regime, and the ministry expects the remaining taxpayers to follow soon.

At the customary post-budget press conference, flanked by her four key secretaries, Sitharaman also announced that the new tax simplification bill would be introduced in Parliament next week. "The proposed income tax simplification process announced in the July 2024 budget is over, and we will bring the bill to the House next week. I hope the bill gets passed without much difficulty," she said.

Clarifying the purpose of tax simplification, she added, "Tax simplification does not mean circumventing the House or taking executive decisions only but simplifying the processes and language primarily."

Finance and Revenue Secretary Tuhin Kanta Pandey elaborated on the benefits of the higher exemption limit, stating that a person earning Rs 12 lakh annually could now save or spend Rs 1 lakh more instead of paying Rs 30,000 in taxes earlier. Similarly, someone earning Rs 24 lakh could save Rs 2.6 lakh compared to a Rs 4.1 lakh tax liability under the previous structure.

"This means that not only those in the lower income brackets benefit from the tax cuts, but every taxpayer, including those in the upper brackets, is also gaining as we’ve reduced and changed the overall tax slabs as well," Sitharaman added.

On the subject of disinvestment, both the minister and her secretaries defended the absence of a clear target, stating, "We purposefully did not put a sell-off target, as we have changed the definition of the process of value creation through sell-off, as even listing is also value creation."

Addressing concerns over flat capital expenditure numbers, Sitharaman and Pandey defended the government’s spending plans. "The budgeted numbers don’t include the central PSUs’ capex commitment of Rs 4 trillion for the year. So there is no going back or scaling down on public capex," Pandey said. He also pointed to the Rs 1.5 trillion in interest-free loans for a 50-year tenor to states for infrastructure development, along with the allowance for states to borrow an additional 0.5 per cent of their GSDP from the markets. "All these will go into capex," he assured.

However, Pandey was less forthcoming when questioned about tax collection targets despite the Rs 1 trillion revenue loss. "We have done our calculations, and the projected revenue numbers are realistic," he said.

Presenting the budget for FY26, Sitharaman projected a nominal GDP growth of 10.1 per cent in FY26, up marginally from 9.8 per cent this fiscal, based on a 10.8 per cent increase in gross tax revenue, implying a tax buoyancy of 1.1. However, this appears ambitious, given the significant personal income tax relief announced.

Additionally, the government expects non-tax revenues to grow by 9.8 per cent in FY26, driven by higher dividends and profits, including record contributions from the RBI, projected at Rs 3.3 trillion next fiscal, up from Rs 2.9 trillion in FY25.

The budget’s optimism hinges on moderate spending growth, with revenue and capital expenditure expected to increase by 6.7 per cent and 10.1 per cent, respectively, in FY26.

Union Finance Minister Nirmala Sitharaman upon her arrival at the Parliament House complex to present the Union Budget 2025-26, in New Delhi, Saturday, Feb. 1, 2025.
Quick take: What do the financial markets know of Budget 2025 that the rest of us too should?

Related Stories

No stories found.

X
The New Indian Express
www.newindianexpress.com