The world is facing an unprecedent challenge of incessant war, tepid economic activity and impeding fear of imposition of tariffs. Amidst these global challenges, Modi government had a tight rope to walk in terms of making any concessionary budgetary announcements. However, this government has no dearth of experiences in dealing with such challenges and they have pulled it off once again.
With the Union Budget 2025 unfolded, Modi’s 3.2 government remain on path to steadfast economic consolidation along with structural reforms. With the Trump tariffs, reshaping the global trade, India has sought to safeguard it’s economy while addressing domestic concerns. The Hon’ble Finance Minister’s focus on boosting taxpayer confidence is commendable and could contribute to increased demand. The budget is a job well done in addressing the lost momentum of the economy.
Perhaps the most welcomed announcement is the relief for the middle-class taxpayer. The budget proposes a tax rebate for individuals with an annual income of up to ₹12 lakh, ensuring that their effective tax liability is zero. The revised slab rates are as follows -
The above proposal is nothing short of a magnum opus, as it taps the India’s pretentious resource, ie its expansive middle class. The above rejig of slab and making the income of Rs. 12 Lakh exempt from tax, it has given a sizeable portion of income back to middle class, which is expected to give a stimulus to consumption.
While this is a commendable move on the part on the part of the government, however, it comes with a hefty burden on exchequer, resultant increase in fiscal deficit, consequent reduction of deployment in capex and fear of reduction of tax base. However, the time will tell if this is a gamble or calculated move.
In addition, the budget brings much - needed clarity for taxation of ULIPs exempted under Clause (10D), of which the premium or the aggregate premium payable during the policy term exceeds ₹2,50,000. Such ULIPs will now be classified as capital assets. This means that gains arising from the redemption of such ULIPs will be treated as capital gains. This change aligns the tax treatment of ULIPs with their investment nature and provides greater clarity and consistency in tax administration.
A crucial highlight of this budget is the increase in capital expenditure (capex) for FY 2026 to ₹11.21 lakh crore, coupled with a promise of lower fiscal deficit, among other nuggets. This signals a long-term commitment to sustainable economic growth.
With the budget proposing a simplification of the fastrack merger process as envisaged the Companies Act 2013 and encouraging more investor friendly bilateral investment protection treaties, India’s standing is ready to be poised on the ease of doing business index.
The budget also rationalizes certain rates of TDS, increases threshold limits for TDS applicability, and provides tax certainty for gains in investment in Alternative Investment Funds (AIFs). Now any gains incurred by the AIF’s will be taxable in the hands of the unitholders as capital gains. This move should encourage investments in AIF and in turn investment in private sectors.
On the manufacturing front, the budget has furthered the ‘Make in India’ initiative by exempting customs duty on 35 additional capital goods for EV battery manufacturing and 28 additional goods for mobile phone battery production. This is a strategic push towards self-reliance in lithium-ion battery production, a critical component for India’s clean energy future.
To compensate for the economic slow – down in the past year, the government has also proposed to the invest in the economy by way of an outlay of 1.5 lakh crore is for the 50-year interest free loans to states for capital expenditure and incentives for reforms. Specific regional initiatives such as Greenfield airports will be facilitated in Bihar to meet the future needs of the State. These will be in addition to the expansion of the capacity of Patna airport and a brownfield airport at Bihar.
In order to ensure continuous support from non-resident in this sector, the Government has proposed to provide a presumptive taxation regime for non-residents engaged in the business of providing services or technology, to a resident company. This incentive is available if services or technology is provided to Indian company establishing or operating electronics manufacturing facility or a connected facility for manufacturing or producing electronic goods, article or thing in India, under a scheme notified by the Central Government in the Ministry of Electronics and Information Technology and satisfies such conditions as prescribed in the rules. To implement such presumptive taxation scheme, the Government has proposed to insert a new section 44BBD in the Income Tax Act with effect from Assessment Year 2026-27 onwards, which deems twenty-five per cent of the aggregate amount received as taxable income of non-resident from this business.
The current budget showcases a shift in government thinking—that large outlays on infrastructure or higher capital expenditure is unsustainable in long term, instead, the focus is on urban consumption and the private sector’s ability to drive growth. The government expects the private sector to step up, particularly in new-age EV and labor-intensive manufacturing, rather than directing every rupee towards government spending. Complementing this shift is the ease of doing business initiative, where infrastructure-related ministries will roll out a three-year pipeline of projects under the Public-Private Partnership (PPP) model. States are also encouraged to participate and can seek support from the India Infrastructure Project Development Fund (IIPDF) to prepare PPP proposals. This marks a strategic transition towards private-led economic expansion and efficient resource allocation.
In order to boost international investment Sunset clause for Sovereign Wealth Funds and have been increased from 31st March 2025 to 31st March 2030. This will provide the stability and time frame necessary for global investors to make substantial contribution to India’s infrastructure development.
The provisions of Tax Collection at Source (TCS) (Section 206(1H) of Income Tax Act, 1961) on goods has proposed to be scrapped. This will provide a major relief to the foreign investors, in particular. Currently, this provision of TCS is applicable on cross border transactions of sale of shares of the Indian companies by Indian resident to foreign investors (buyers). Considering that the TCS collected by the Indian resident is on account of the foreign investors (buyers) therefore, the Indian resident sellers used to gross up the consideration with TCS (0.1% of gross consideration). With the removal of TCS on goods (goods includes shares), the transaction cost of foreign companies intending to buy shares of Indian entities from Indian resident will reduce by 0.1% of gross consideration.
Another relief to international investors, is the rationalisation of Significant Economic Presence (SEP). SEP was introduced to tax non-resident entities engaged in substantial businesses activity in India in the form of transaction in respect of goods or services or engaging in interaction with users in India. It was introduced essentially targeted to tax foreign e-commerce companies and data collection companies, which were generating large amount of revenues from the Indian markets without payment of any tax in India.
The concept of SEP, however, created potential tax issues for foreign companies who were procuring raw material from India, solely for the purposes of exports out of India. Therefore, SEP had a potential threat to exports from India. The Finance Bill 2025 aims to resolve this ambiguity by ensuring that export-oriented activities are not considered a SEP.
A key objective of the current budget has been to bring rationalisation, certainty and parity to tax provisions. One attempt is to bring alignment in the provisions of carry forward and set off of losses. Currently, upon merger of loss-making predecessor entity with profit making successor entity provides a fresh lease of life to the business losses and unabsorbed depreciation. Now the budget proposes to plug this “evergreening” of the losses of the predecessor entity resulting from successive amalgamations, and has provided that any loss forming part of the accumulated loss of the predecessor entity, can be carried forward for not more than eight years since the loss was first computed for original predecessor entity.
Further to ease the compliance burden of the taxpayer, the budget has proposed to remove the provisions pertaining to deduction of tax at higher rate of the deductor/ collector of TDS/TCS when the deductee specified therein is a non-filer of income-tax return. Apart from that the budget has also proposed rationalization of certain rates of TDS and in increase in threshold limit for applicability of the TDS provisions.
Unfortunately, there was no relief for the crypto industry in the recent budget. The current tax regime provides for 1% TDS, 30% tax on crypto gains, and no provision to offset losses—continues to stifle growth and discourages users not to indulge in crypto assets. This not only undermines crypto as an asset class but also results in lost tax revenue for the government. In addition, this year budget has proposed to include crypto assets in the definition of "undisclosed income" for block assessment purposes. Further, the budget also proposed to introduce new 'crypto-asset' reporting obligation. The said proposals could could likely mean more compliance burdens on already compliant domestic exchanges.
Another welcome change is the proposed amendment section of 276BB of the Act to provide that the prosecution shall not be instituted against a person who has failed to comply with the TCS payment obligations, if the payment of the tax collected at source has been made to the credit of the Central Government at any time on or before the time prescribed for filing the quarterly in respect of such payment.
The vision reflected through Union Budget 2025 of ‘Viksit Bharat’ stands as an ambitious blueprint for revitalization of Indian economy, blending in generous relief for middle-class taxpayers with measures to attract private investment and streamline tax administration. While its reforms—from easing tax rates to incentivizing infrastructure and clean energy — offers a sustainable pathway toward growth, the real test lies in their execution and managing fiscal deficit. Will this budget truly warm the hearts of common taxpayers and investors, or will its impact remain limited to promises? Only time will tell.
About the authors: Amit Singhania is the Managing Partner of Areete Law Offices. Kriti Mehrotra is an Associate at the Firm.
Views expressed are personal.