Every year, we eagerly anticipate the Union Budget, hoping for significant announcements that will impact our lives and shape the nation’s economy. This year was no different. To begin with, there wasn’t much to seize, nothing worth jotting down, till the eleventh hour. And then, a bolt: a bold, positive one that eased everyone, but most of all, the middle-class citizens. Increase in income tax exemption limit and the effective tax-free salary up to RS 12.75 lakh was a long-awaited reform. It is undoubtedly an excellent move that will benefit individuals, entrepreneurs, and the economy at large.
A Victory for the Middle Class
For years, everyone has been requesting a change in tax slabs, specifically when inflation continues to erode savings. India’s household savings have fallen from 28% to 17%, and it is increasingly becoming a challenge for budgets of middle-class families to pay for expenses and along with saving for the future. With a plethora of Indirect taxes, GST, and TDS, overall taxes have been high.
Now, individuals with an annual salary of Rs.12 lacs need not pay income tax. Due to increased Standard deduction of Rs. 75000, the actual exemption limit is further extended to 12.75 Lacs for salaried individuals. This move not only benefits individuals but also stimulates consumption and business growth, which in turn fuels economic expansion. The government has taken a big step in bringing about this change and it must be appreciated.
Unequal Allocation
There was one-sided bias towards Bihar, with a number of big-ticket deals, including:
- Four new Greenfield airports.
- IIT Patna infrastructure development.
- A National Centre for Food Technology.
- Setting a Makhana board for farmers in Bihar.
- A new scheme for the Western Kosi Canal.
Although development for Bihar is deserving, development for other states should not be overlooked. Favoring a specific state should not become a practice to achieve balanced development across the country.
Missing Opportunity in Manufacturing
While positive in regards to taxes, the budget did not have a strong boost for industries, particularly for manufacturing. Experts including Nilesh Shah at Kotak AMC have criticized that no significant scheme and reform have been proposed for industries, specifically for manufacturing.
India, with its current position as the most populous country in the world, boasts a youth workforce and tremendous potential for development in industries. Yet, with each passing year, we miss out on an opportunity to consolidate industries, and with them, jobs and overall national development.
Capital Gains Tax and Other Concerns
While there were tax cuts for salaried individuals, capital gains taxes and securities transaction tax (STT) remain unchanged. Investors were hoping for relief, but no major announcements were made in this area.
On the positive side, some minor tax benefits were introduced
- The TDS limit for rental income rose to Rs 6 lakh from Rs 4 lakh, which will decrease the number of transactions liable to TDS, thus helping small taxpayers, receiving small payments.
- The TCS limit on remittances under RBI’s Liberalized Remittance Scheme (LRS) is proposed to be increased to Rs 10 lakh from Rs 7 lakh.
A Conservative Aim: Economic Growth
The Chief Economic Advisor “V Anantha Nageswaran” has projected a GDP growth rate of 6.1% to 6.3% for 2025-26. While this is a reasonable estimate, it reflects a cautious outlook. For a developing country like India, sustained growth above 7% is essential to achieve long-term economic goals.
Other countries, including China, have accelerated at 10-12% in a single year during high growth phases in the past. For India to become a developed economy in 2047, a bold reform and investment campaign is a must. Taxation will generate a short-term gain, but long-term growth will rely on transforming structures in sectors like manufacturing, infrastructure, and technology transformation.
Verdict: A Step in the Right Direction, but Not Yet Sufficient
For the most part, this budget is a long-awaited break for the middle class, in terms of income tax reductions. It is a positive step in a positive direction, with a sign that public concerns and voice count. There are, however, important gaps most prominently in reform in manufacturing, state-by-state budgeting, and taxing capital gains.
While this budget is a success for India’s middle class, it is not a game-changer for India’s long-term aspirations for its economy. As long as the government keeps listening to its citizens’ feedback, in future years, even more effective reforms can become a reality.
(The Author is Program Director – Paari School of Business – SRM University –AP)
