Union Budget 2025: Key Tax Reforms and Economic Policies to Watch

Introduction

As Finance Minister Nirmala Sitharaman prepares to unveil the Union Budget 2025, businesses, taxpayers, and industry leaders are eagerly anticipating significant policy shifts. This year’s budget must navigate a delicate balance between fiscal discipline and economic growth while addressing public expectations on taxation, subsidies, and regulatory reforms.

Income Tax Reforms: What to Expect?

One of the most anticipated aspects of the budget is income tax relief for salaried individuals, middle-class taxpayers, and businesses. Based on expert insights and economic trends, the following tax changes are likely:

1. Revision in Tax Slabs

• Taxpayers expect an increase in the basic exemption limit under both the old and new tax regimes.
• There is speculation that the government may raise the tax-free income threshold to ₹10 lakh to increase disposable income.
• A revision in 80C deduction limits, currently capped at ₹1.5 lakh, could encourage higher savings and investments.

2. Standard Deduction Expansion

• Salaried individuals and pensioners are looking forward to an enhancement in the standard deduction, currently ₹50,000.
• Increasing this limit will ease tax burdens, especially in light of rising inflation.

3. Home Loan Interest Deductions

• The government may introduce higher tax benefits for home loan interest payments, particularly for first-time buyers.
• This could help boost the real estate sector while making housing more affordable.

GST and Indirect Tax Updates

1. Rationalization of GST Rates

• The budget might address the long-pending demand for GST rate rationalization, simplifying compliance for businesses.
• Essential commodities and services could see reduced tax rates, making them more affordable.

2. GST Exemptions for Digital Transactions

• With the rise of digital payments, transactions below ₹2,000 via payment aggregators may continue to enjoy GST exemptions to promote cashless transactions.
• This aligns with the government’s vision for a Digital India.

Subsidies and Economic Relief Measures

1. Increased Subsidy Allocation

• With rising inflation, the government may increase budget allocations for food, fertilizer, and cooking gas subsidies to help low-income households.
• Reports suggest a possible 8% rise in overall subsidies compared to the previous year.

2. Agriculture and Rural Economy Support

• The government is likely to boost spending on rural infrastructure, irrigation, and farm subsidies.
• Financial support for MSMEs and agritech startups could also be introduced to enhance rural employment.

Privatization vs. Public Investment

1. Shift Away from Aggressive Privatization

• Unlike previous years, the government is reconsidering its privatization strategy.
• Instead of selling stakes in state-owned enterprises, the focus will be on reviving loss-making PSUs through targeted investments.
• A ₹1.5 billion rescue package for select state-run enterprises has been proposed.

Legal and Compliance Reforms

1. Supreme Court’s Ruling on Tax Treaties

• The Supreme Court has recently ruled that a notification under Section 90(1) of the Income Tax Act is mandatory to enforce any tax treaty or protocol.
• This clarification ensures greater tax certainty and compliance for multinational businesses and foreign investors.

Industry Expectations

Different industries have specific expectations from the budget:

Conclusion

The Union Budget 2025 is expected to focus on taxpayer relief, economic growth, and strategic investments in priority sectors. While fiscal prudence remains a challenge, the government is likely to adopt proactive policies to foster economic stability.