Union Budget 2025-26 – Key Announcements & Tax Changes

Finance Minister Nirmala Sitharaman's Union Budget 2025-2026 is a critical document for the future of India's economy. It shall run from April 1, 2025, to March 31, 2026, and set out the financial plans, the expected revenues, and expenditures of the government for the upcoming financial year. It serves as a guidepost for the nation’s economic priorities and the emphasis on sectors such as agriculture, manufacturing, infrastructure, and social welfare while providing the architecture for a sustainable and resilient economy.

The budget comes as the country deals with challenges including slower growth forecasts,  inflationary pressures, and increasing calls for tax relief.The Union Budget balances caution with optimism, to economic activity alongside fiscal fitness and price stability.

Fiscal Deficit Target and Economic Outlook

Finance Minister Sitharaman pointed to a commitment to fiscal discipline with a fiscal deficit target of 4.4% of Indian GDP in 2025-2026. Thus, we are working towards reducing the deficit below 4.5% of GDP by the close of the financial year, as stated by the Fiscal Responsibility and Budget Management Act. It reflects the government’s continued pursuit of fiscal prudence and push for public investment and economic recovery while attempting to balance growth and fiscal consolidation.

Taxation Reforms: A Boost to the Middle Class

One of the highly awaited pointers of Union Budget 2025-2026 will be personal income tax reforms meant for the middle class. The government has laid down many key measures meant to alleviate the tax burden on salaried individuals.

• Zero Income Tax for Salaried Individuals Earning Up to ₹12 Lakh: One of the key reforms that could be targeted at delivering considerable relief to middle-income taxpayers in this budget is the introduction of taxation of zero percent for those earning up to ₹12 lahks a year under the New Tax Regime.
• Standard Deduction of ₹75,000: This along with the income-tax-free limit would mean an introduction of a standard deduction of ₹75,000, thereby increasing the tax-free limit to ₹12.75 lakh.

Current Income tax slabs (FY 2024-25) under new tax regime V/s New Income Tax Slabs (FY 2025-26)

TDS and TCS Reforms

The government has proposed amendments to TDS and TCS to ease the tax structure:

• Section 194LBC: Reduced the TDS rate from 25% to 10% for individuals/HUF, benefitting the non-individual payees, and opening up a wider pool of funds for investors.
• Section 206C (1): The TCS rate on timber and other forest produce is lowered from 2.5% to 2%, benefiting traders and businesses in this sector.
• Section 206C (1G): For loans beyond ₹7 lakh under LRS, the new budget has exempted them from 0.5% TCS. This comes as a great relief for students who wish to take educational loans for higher studies abroad reducing a major chunk of their financial burden.

Prioritizing Key Sectors for Growth:

The federal budget for the year 2025 to 2026 invested in the economic transformation of India in many sectors. The following sectors were especially taken into consideration:

1. Agriculture and Rural Development –

• Kisan Credit cards (KCC)

• • Kisan Credit Cards (KCC) will continue supporting 7.7 crore farmers, fishermen, and dairy farmers with short-term loans.
  • The loan limit under the interest subvention scheme will increase from ₹3000 to ₹5000, enhancing financial support for agricultural needs.

• Prime Minister Dhan-Dhaanya Krishi Yojana - Developing Agri Districts Programme

• • The program is to be launched in partnership with the states, covering 100 districts with low productivity, moderate crop intensity, and below-average credit parameters, to benefit 1.7 crore farmers.

• Building Rural Prosperity and Resilience

• • A comprehensive multi-sectoral program to be launched in partnership with states to address under-employment in agriculture through skilling, investment, technology, and invigorating the rural economy.
  • Phase-1 to cover 100 developing agri-districts.

• Aatmanirbharta in Pulses

• • Government to launch a 6-year “Mission for Aatmanirbharta in Pulses” with a focus on Tur, Urad, and Masoor.
  • NAFED and NCCF to procure these pulses from farmers during the next 4 years.

• Comprehensive Programme for Vegetables & Fruits: A comprehensive program to promote production, efficient supplies, processing, and remunerative prices for farmers is to be launched in partnership with states.
• Makhana Board in Bihar: A Makhana Board is to be established to improve the production, processing, value addition, and marketing of makhana.
• National Mission on High-Yielding Seeds: A National Mission on High Yielding Seeds is to be launched aiming at strengthening the research ecosystem, targeted development, and propagation of seeds with high yield, and commercial availability of more than 100 seed varieties.
• Fisheries: Government to bring a framework for sustainable harnessing of fisheries from the Indian Exclusive Economic Zone and High Seas, with a special focus on the Andaman & Nicobar and Lakshadweep Islands.
• Mission for Cotton Productivity: A 5-year mission was announced to facilitate significant improvements in the productivity and sustainability of cotton farming and promote extra-long-staple cotton varieties.
• Enhanced Credit through KCC: The loan limit under the Modified Interest Subvention Scheme is to be enhanced from ₹ 3 lakh to ₹ 5 lakh for loans taken through the KCC.
• Urea Plant in Assam: A plant with an annual capacity of 12.7 lakh metric tons is to be set up at Namrup, Assam.

2. Micro, Small, and Medium Enterprises (MSMEs)- 

• Revision in classification criteria for MSMEs: The investment and turnover limits for the classification of all MSMEs are to be enhanced to 2.5 and 2 times respectively.

• Credit Cards for Micro Enterprises: Customized Credit Cards with ₹ 5 lakh limit for micro-enterprises registered on Udyam portal, 10 lakh cards to be issued in the first year.

• Fund of Funds for Startups: A new Fund of Funds, with an expanded scope and a fresh contribution of ₹ 10,000 crore to be set up.

• Scheme for First-time Entrepreneurs: A new scheme for 5 lakh women, Scheduled Castes, and Scheduled Tribes first-time entrepreneurs to provide term loans up to ₹ 2 crore in the next 5 years was announced.

• Focus Product Scheme for Footwear & Leather Sectors: To enhance the productivity, quality, and competitiveness of India’s footwear and leather sector, a focus product scheme was announced to facilitate employment for 22 lakh persons, generating a turnover of ₹ 4 lakh crore and exports of over ₹ 1.1 lakh crore.

• Measures for the Toy Sector: A scheme to create high-quality, unique, innovative, and sustainable toys, making India a global hub for toys announced.

• Support for Food Processing: A National Institute of Food Technology, Entrepreneurship and Management to be set up in Bihar.

• Manufacturing Mission - Furthering “Make in India”: A National Manufacturing Mission covering small, medium, and large industries for furthering “Make in India” announced.

3. Infrastructure Development (with the vision of "Viksit Bharat 2047”).

• National Infrastructure Pipeline (NIP)

• • The government has continued focusing on the National Infrastructure Pipeline (NIP) with more investment being introduced to achieve road, rail, and airport connectivity.
  • To fast-track the progress of key projects under NIP, a considerable sum of financing will be allocated to expedite project completion.

• Green and Smart Infrastructure: The budget recognizes the need for green infrastructure, especially in urban areas. It is particularly focused on building smart cities that take sustainability, mobility, and renewable energy integration as cornerstones.

• Urban and Rural Infrastructure: A particular emphasis was placed on improving infrastructure in the rural areas with initiatives to upgrade roads, drinking water supply systems, and sanitation facilities. Urban development continues to be a priority, with smart city projects being taken up

• Infrastructure Financing: The establishment of new financing mechanisms and support for the PPP model is part of the government's strategy for increasing investment in infrastructure development.

• Railway Infrastructure: The budgetary allocation is largely earmarked for the development of Indian Railways, with enhanced allocations for dedicated freight corridors and electrification of railways

• • Port and Maritime Development: Improvements to port infrastructure are included in the budget to enhance maritime trading and lower the logistics costs of goods moving through ports.
  • Airports and Aviation Infrastructure: It also set measures to expand aviation infrastructure, particularly the construction of new airports and the modernization of existing ones. 
  • Highways and Road Connectivity: National highways are being invested with priority given to highway expansion and the development of connectivity in major economic zones.
  • Energy and Utilities Infrastructure:Significant resources are being given to energy infrastructure, including interconnections and renewable projects such as solar parks.

4. Energy and Renewable Resources- 

• Renewable Energy Transition and Domestic Manufacturing

• • Facilitating Renewable Energy Transition: The budget outlines a slew of measures to aid the transition to renewable sources of energy, including incentives for solar and wind energy projects.
  • Promoting Domestic Manufacturing: There is a focus on enhancing local manufacturing for renewable energy machinery in such a way as to lessen dependence on importation and to build local industry.

• Power Distribution Enhancement (Improving Power Distribution): Inclusion of provision in the budget for power distribution infrastructure for efficient delivery of electricity and reduced transmission losses.
• Nuclear Energy Development:Support for Nuclear Energy: Funds were allocated in the budget for aiding in the development of nuclear energy projects contributing towards energy diversification and energy security in India.
• Clean Technology Manufacturing: Incentives for Clean Technology: Incentives may include the manufacturing of clean technologies to strengthen renewable energy supply chains, such as solar panels and wind turbines.
• Lithium-Ion Battery Production (Support for Battery Production): The budget outlines measures to support the production of lithium-ion batteries critical for energy storage and electric vehicles to improve energy storage capacity.
• Budgetary Allocations (Increased Funding for Energy Ministries): The Ministry of Power has been allocated ₹21,847 crore, and the Ministry of New and Renewable Energy ₹26,549 crore for the fiscal year 2025-26, reflecting a significant increase from the previous year.

5. Technology and Innovation-

• Deep Tech and Startups Support: In the budget, the ecosystem for deep-tech startups in India gains some considerable support by proposing the establishment of Centres of Excellence (CoEs) for AI, ML, and other emerging technologies. These centers will nurture innovation and collaboration between research institutions and the private sector.

• Research and Development (R&D) Support: A ₹15,000 crore package has been proposed by the Indian government to further provide R&D in renewable energy, defense technology, and biotechnology. Also, the support for technology-sector startups has been boosted, as a special focus is given to startups with advanced technologies, like AI, blockchain, and cybersecurity. 

• Innovation in Digital Infrastructure: A key take in the budget is an aggressive strategy to boost India's existing digital infrastructure, 5G expansion, and broadband Internet connectivity in rural and underserved areas. The allocation will boost more access to digital tools and technologies for the masses

• Cybersecurity and Data Protection: Increased electricity is ushering in an age of data revolution; alongside safeguards for better cybersecurity and stronger enforcement of data protection laws to keep sensitive information secure across both public and private sectors are also provided in the budget habit, affecting the most glaringly casual of acquaintances. 

• AI and Automation: The budget emphasizes the role of AI, automation, and robotics in sectors like manufacturing, healthcare, and agriculture. The government plans to invest in AI-driven solutions to enhance productivity and innovation.

• Support for Clean Energy Technologies: Focus on clean energy technologies like solar, wind, and battery storage systems has been emphasized, with special attention to innovative clean technologies that can help India meet its climate goals.

6. Healthcare- 

• Healthcare Infrastructure:

• • The Union Budget 2025-26 proposes an allocation of ₹99,858 crore for healthcare, marking an increase in funding to strengthen public healthcare infrastructure.
  • The National Health Mission has allocated ₹37,226 crore to improve access to healthcare, particularly in rural and underserved areas.
  • There is a focus on upgrading health centers, disease surveillance, and strengthening the emergency response system.

• Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PM-JAY): Expansion in PM-JAY is toward increasing beneficiaries and providing health insurance for deprived populations; however, specific numbers or any mention of designating expansion is not given in the budget.
• Medical Tourism: While globally, the initiatives are directed towards turning India into a hub for medical tourism, there is no mention of any direct program called "Heal in India" in the budget.
• Customs Duty Reduction on Medicines: The budget does not provide specific mention of cuts to custom duties on essential drugs; however, beyond the government's rhetoric about affordable healthcare, there has not been a clear enunciation of any specific tax relief in this regard. 
• Food Processing and Nutrition: The budget does talk about the establishment of the National Institute of Food Technology, Entrepreneurship, and Management (NIFTEM) in Bihar, which indirectly supports nutrition and health but is more related to food processing.
• Startup Support for Healthcare: While there is a Fund of Funds proposed for startups, the focus is not exclusively on healthcare. The fund will support various sectors, including technology and innovation, which could benefit health-tech startups.

7. Tourism and Hospitality- 

• Development of 50 Tourist Destinations: This has been outlined, with an emphasis on developing key tourism spots, enhancing infrastructure, and boosting domestic and international tourism.
• Financial Support for Hotels: Financial provisions for hotels to access easier loans for infrastructure improvement and expansion, particularly in tourism-heavy destinations, are in the budget.
• Support for the Homestay Sector: There is a focus on supporting micro and small businesses within the hospitality sector, including homestays, with access to MUDRA loans.
• Infrastructure Development and Connectivity: This is a significant part of the budget, particularly the focus on improving connectivity in tier-2 and tier-3 cities to increase tourist access.
• Promotion of Spiritual and Medical Tourism: There are plans to promote specific types of tourism, such as medical tourism, and ease visa processes for international visitors.
• Skill Development Initiatives: The budget does include initiatives for upskilling the workforce, including in sectors like tourism and hospitality, through specialized training centers.
• Allocation for Tourism Development: A dedicated allocation has been made for tourism development, with a specific focus on boosting employment linked to the sector.

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