Budget 2025-26: Middle class gets tailored tax break

New Delhi: With a sweeping set of tax cuts and ambitious economic reforms, Finance Minister Nirmala Sitharaman unveiled the Union Budget 2025-26 on Saturday, offering relief to millions of middle-class taxpayers while charting a bold roadmap for ‘Viksit Bharat’. The Budget, amounting to Rs 50.65 lakh crore, marked an increase of 7.4 per cent over the previous fiscal, balancing economic growth with financial prudence.

One of the major highlights of the Budget was the enhancement of the income tax exemption threshold. Individuals earning up to Rs 12 lakh per year will now be exempt from paying taxes, up from the previous limit of Rs 7 lakh. Additionally, a standard deduction of Rs 75,000 has been introduced for salaried individuals, leading to substantial tax savings.

The revised tax slabs are set to benefit 6.3 crore taxpayers, with savings of up to Rs 1.1 lakh for individuals earning up to Rs 25 lakh annually. “The new structure will substantially reduce taxes on the middle class and leave more money in their hands, boosting household consumption, savings, and investment,” Sitharaman stated in her speech.

She further highlighted that these reforms would result in nearly 1 crore individuals falling out of the tax bracket altogether, significantly reducing the tax burden on the middle class. The government has earmarked Rs 5.41 lakh crore for Centrally Sponsored Schemes in FY26, compared to Rs 4.15 lakh crore in the current year. Meanwhile, central sector schemes have been allocated Rs 16.29 lakh crore, reflecting a focus on infrastructure and social welfare.

Capital expenditure has been Budgeted at Rs 11.22 lakh crore, with an effective capital expenditure of Rs 15.48 lakh crore. Additionally, Rs 25.01 lakh crore will be transferred to states, marking an increase of Rs 4.91 lakh crore over the previous fiscal.

Despite the increase in spending, Sitharaman projected a reduction in the fiscal deficit, targeting 4.4 per cent of GDP in FY26, down from 4.8 per cent in the current fiscal. “Our endeavour will be to keep the fiscal deficit each year such that the central government debt remains on a declining path as a percentage of GDP,” she said, aiming for a 50 per cent debt-to-GDP ratio by 2031.

The Budget reaffirmed the government’s commitment to infrastructure development, with a continued push for roads, railways, and housing. The highways ministry received an allocation of Rs 2.87 lakh crore, while a new Rs 1 lakh crore Urban Challenge Fund was announced to strengthen urban infrastructure.

A Maritime Development Fund of Rs 25,000 crore was introduced to promote long-term financing in the sector. Additionally, the government extended the PM SVANidhi scheme to support street vendors and announced a second phase of the SWAMIH fund to complete 1 lakh stalled housing projects.

The Union Budget 2025-26 revealed key allocations across major sectors, with the defence sector receiving Rs 6.81 lakh crore for modernisation and preparedness initiatives. The Health Ministry saw an 11 per cent increase in its Budget to strengthen medical infrastructure, while the education sector emphasised AI development and expansion of IITs, including plans for five new institutes and the addition of 10,000 medical seats. The Women and Child Development Ministry received Rs 26,889 crore, highlighting the government’s commitment to social welfare programs. The aviation sector was allocated Rs 2,400 crore, though the UDAN scheme Budget was reduced to Rs 540 crore, indicating a shift in air connectivity priorities.

The finance minister announced a range of social security measures, including a nationwide social security scheme for nearly 1 crore gig workers. Additionally, Rs 10,000 crore was allocated for a new Fund of Funds to support startups.

A significant push was also given to agriculture, with the introduction of the ‘PM Dhan Dhyan Krishi Yojana,’ benefiting 1.7 crore farmers. The government increased the limit for subsidised credit under Kisan Credit Cards to Rs 5 lakh from Rs 3 lakh and launched a national mission for high-yielding seeds, focusing on pulses and cotton production.

In the energy sector, a target of generating 100 gigawatts of electricity from nuclear power by 2047 was set. The finance minister proposed amendments to nuclear liability laws to facilitate private-sector investments.

The government proposed raising the foreign investment limit in the insurance sector from 74 per cent to 100 per cent. The move is expected to attract greater foreign capital and strengthen the sector.

While outlining growth projections, Sitharaman acknowledged the challenges posed by global uncertainties, including new tariff threats from US President Donald Trump. The Indian economy is expected to grow between 6.3 per cent and 6.8 per cent in the next fiscal, below the 8 per cent required to meet India’s goal of becoming a developed nation by 2047.

The finance minister also announced a series of tax reforms to ease compliance and reduce the burden on individuals and businesses. The threshold for Tax Deducted at Source (TDS) on rent was increased from Rs 2.4 lakh to Rs 6 lakh, while exemptions on critical minerals such as lithium, cobalt, and lead were introduced to support the EV and electronics industries.

Import duties were slashed on certain life-saving drugs, while duties on smart meters and knitted fabrics were increased. “These measures will enhance domestic production while ensuring that essential goods remain affordable,” Sitharaman explained.

A Rs 2 crore term loan scheme was announced for five lakh first-time entrepreneurs from women, SC, and ST communities. The government also launched a National Manufacturing Mission and increased investment limits for MSME classification to encourage industrial growth. A new labour-intensive manufacturing policy was announced, covering sectors like leather and footwear, while an incentive-based scheme was introduced to promote India as a global hub for toy manufacturing.

To boost tourism, the government will develop the top 50 destinations in collaboration with state governments. Meanwhile, the Environment Ministry’s Budget was raised by 9 per cent to support conservation efforts and climate resilience initiatives.

The Jal Jeevan Mission was extended till 2028, with a significantly enhanced Budget to provide drinking water to rural households. Additionally, 50,000 Atal Tinkering Labs will be set up over the next five years to encourage innovation among students.