
NEW DELHI: a country is not just its soil, a country is its people—a famous line of Telugu poet and playwright Gurajada Appa Rao quoted by Finance Minister Nirmala Sitharaman in her speech—sums up the focus of Budget 2025-26. The middle class was the central focus of the Budget, which heralded a big income tax cut the demand for which calls came from all corners—salaried people, industrialists, and economists. All of them were unanimous in their call for a relief to the common man, the absence of which was writ large in all macro and micro indicators.
The FM was cheered by all the members of Parliament when she announced the personal tax proposals, which include a major overhaul in tax slabs and an increase in the threshold up to which no tax is levied on income.
The income threshold was increased from Rs 7 lakh to Rs 12 lakh, virtually making any income up to Rs 12.75 lakh tax free. The new tax slab significantly reduces the tax burden on all with the highest tax rate of 30% applicable on income over Rs 24 lakh from Rs 18 lakh earlier.
The government will introduce a new income tax bill in Parliament next week, replacing the six-decade old Income Tax Act of 1961.
According to Sitharaman, the tax reforms will result in a revenue loss of Rs 1 lakh crore. However, analysts say this could be much higher. Despite her tax largesse and the resultant revenue loss, the government maintains a strong fiscal stance.
The fiscal deficit target has been kept at 4.4% in FY26, and the government plans to keep its borrowings lower than the current financial year, lower than 4.8% estimated in the current financial year. It’s a fiscal magic that the government plans to achieve through higher collection of personal taxes, which are estimated to grow at 14.5%.
The government has, for a change, decided to go slow on capex as the allocations for capital expenditure has been kept at Rs 11.2 lakh crore, a 10% increase from the revised FY25 estimate of Rs 10.2 lakh crore.
However, the government has defending flat capex numbers as it argues that the budgeted numbers don’t include the central PSUs’ capex commitment of Rs 4 lakh crore for the year. “So, there is no going back or scaling down on public capex,” said finance secretary Tuhin Kanta Pandey.
The Budget also launched a massive rationalisation of customs duty to help both manufacturers and the middle class. That the move came in the wake of US President Donald Trump’s aggressive stance against countries with high import tax regime is notable. With the duty cut, Harley-Davidson bikes will be cheaper as its levy has been brought down from 50% to 40%.
Apart from the middle class, the Budget centred around 10 broad areas focusing on the poor, youth, farmers, and women. The objectives include spurring agricultural growth and productivity, building rural prosperity and resilience; inclusive growth path, boosting manufacturing and supporting MSMEs, and enabling employment-led development.
In a significant boost to the MSME sector, the FM announced that credit guarantee cover for the MSME will be doubled from Rs 5 crore to Rs 10 crore. This leads to additional credit of Rs 1.5 lakh crore in the next five years. Over 1 crore registered MSMEs currently employ 7.5 crore people and generate 36% of India’s manufacturing.