2024 Full budget seems like yesterday still, and we already have the 2025 Budget. And keeping with the past trend, we have our analysis ready for you.
As most of you might already know by now (if not, then you know now!), that the most noteworthy topic of this budget was changes in the Personal Income taxes, as compared to large scale structural kind of reforms - in quite a contrast to previous years (and saved us from writing the same comment from the past few years! š ). Though there are quite a few important reforms too - which we will try to cover, but yes, this time, we shall focus more, with examples, on the tax changes, to try to answer as many questions as possible!
Key Highlights:
Rural, Agriculture & MSMEs:
India Post along with the India Post Payment Bank, will be repositioned to act as a catalyst for the rural economy. Its service offerings will be expanded to cover DBT, EMI pickups, assisted digital services etc. It will also be transformed as a large public logistics organization.
On the agriculture front - initiatives like special 6 year missions for Toor, Urad and Masoor dal, self reliance in edible oils - have been announced.
Customized Credit Cards will be introduced for Micro Enterprises with an INR 5 lakh limit for the enterprises registered on Udyam portal. In the first year, 10 lakh such cards will be issued.
A new scheme will be launched for 5 lakh women, Scheduled Castes and Scheduled Tribes first-time entrepreneurs. This will provide term loans up to INR 2 crore during the next 5 years.
15 crore households representing 80% of India's rural population are connected with tap water under the Jal Jeevan Mission. This mission is now extended until 2028 to achieve 100% coverage with enhanced outlay.
Innovation, Deep Tech, Digital Public Infra:
Commitments received by AIFs (Alternative Investment Funds) exceeding INR 91,000 crore are supported by the Fund Of Funds set up with a Government contribution of INR 10,000 crore. Now, a new Fund of Funds, with expanded scope and a fresh contribution of another INR 10,000 crore will be set up.
Allocation of INR 20,000 crore is committed towards the Research, Development and Innovation initiative announced in the previous budget. A Deep Tech Fund of Funds will also be explored to catalyze the next generation startups as a part of this initiative.
National Geospatial Mission to develop foundational geospatial infrastructure and data. Using PM Gati Shakti, this Mission will facilitate modernization of land records, urban planning, and design of infrastructure projects.
A digital public infrastructure, āBharatTradeNetā (BTN) for international trade will be set-up as a unified platform for trade documentation and financing solutions. This will complement the Unified Logistics Interface Platform.
A Nuclear Energy Mission for R&D in Small Modular Reactors (SMR) with an allocation of INR 20,000 crore will be set up, with an aim to indigenously develop at least 5 SMRs by 2033. This will help achieve developing at least 100 GW of nuclear energy by 2047 is essential for our energy transition efforts.
The Clean Tech manufacturing mission will aim to improve domestic value addition and build our ecosystem for solar PV cells, EV batteries, Motors and controllers, electrolyzers, wind turbines, very high voltage transmission equipment and grid scale batteries.
To implement the earlier announcement on simplifying the KYC process, the revamped Central KYC Registry will be rolled out in 2025. A streamlined system for periodic updating will also be in place.
50,000 Atal Tinkering Labs will be set up in Government schools in next 5 years to cultivate the spirit of curiosity and innovation, and foster a scientific temper among young minds.
Additional infrastructure to support 6,500 more students will be created in the 5 IITs started after 2014.
Government will arrange for their identity cards and registration of the nearly 1 crore gig workers of the online platforms (we know many of those!) on the e-Shram portal. They will be provided healthcare under PM Jan Arogya Yojana.
Other important measures:
Tourism - Top 50 tourist destination sites in the country will be developed in partnership with states through a challenge mode. Land for building key infrastructure will have to be provided by states. MUDRA loans will be provided for home stays. Efforts to be undertaken to improve ease of travel and connectivity to tourist destinations.
FDI limit for the insurance sector to be raised from 74% to 100%. This limit will be available for those companies which invest the entire premium in India.
An initiative to update certain regulations that were made under old laws is also announced. To develop this modern, flexible, people-friendly, and trust-based regulatory framework appropriate for the 21st century, a High-Level Committee for Regulatory Reforms will be set up for a review of all non-financial sector regulations, certifications, licenses, and permissions. The committee will be expected to make recommendations within a year. The objective is to strengthen trust-based economic governance and take transformational measures to enhance āease of doing businessā, especially in matters of inspections and compliances.
Economic performance
The Fiscal deficit (revised) is estimated at 4.8% of GDP (against 4.9 projected during 2024 full budget).
For FY 2025-26 the fiscal deficit is estimated to be 4.4 per cent of GDP (against initial target of 4.5 provided in 2024 full budget).
Tax changes:
Several indirect tax changes - including relief on import of Drugs/Medicines by fully exempting custom duties or reducing to concessional rates for several critical medicines and drugs, including for manufacture of such medicines and changes in duties with respect to textiles, Flat Panel Displays, Lithium Ion batteries etc.
New income tax bill to be introduced next week, which will replace the existing Income Tax Act, 1961. This could be a major shift, including simplification of laws and procedures. The actual provisions of the bill remain to be seen formally. Notice the fact that it will be a āBillā. Which means, once passed, it is expected to become a Law, once the President gives the assent.
The TDS limit for interest for senior citizens is being doubled from the present INR 50,000 to INR 1 lakh. Similarly, the annual limit of INR 2.40 lakh for TDS on rent is being increased to INR 6 lakh. This will reduce the number of transactions liable to TDS, thus benefiting small taxpayers receiving small payments.
Both TDS and TCS are being applied on any transaction relating to sale of goods. To prevent such compliance difficulties, TCS will be omitted.
The time-limit to file updated returns for any assessment year, is extended from the current limit of two years, to four years. This can facilitate voluntarily reporting any incomes or credits, which might have been missed by the taxpayers earlier, without any legal troubles.
Currently, taxpayers can claim the annual value of a second self-occupied property as nil only on the fulfilment of certain conditions. Considering the difficulties faced by them, it is proposed to allow the benefit unconditionally.
Clarificatory - gains from the redemption of unit linked insurance policies to which exemption under section 10(10D) does not apply, shall be treated as capital gains.
NPS Voluntary contributions deduction available under section 80CCD (1B) is extended to the NPS Vatsalya accounts. It is worth noting, that as per the details available at this point, this will be included within the limit of INR 50,000 currently available. Further, since this is extended in the existing section, it also means that this deduction will not be available under the New Tax regime.
Increase in the limits on the income of the employees for the purpose of calculating perquisites: The provisions of Section 17 are proposed to be amended so that the power to prescribe rules may be obtained to increase these limits. Detailed reading of this announcement reveals to quite important changes, which may help quite a few employees:
Any benefit exceeding INR 50,000 in value, provided to employees was treated as a taxable perquisite. Going forward, this amount shall be prescribed from time to time.
Any cost related to travel by an employee or their family member with respect to the medical treatment of an employee, was treated a taxable perquisite, if the taxable income of the employee exceeded INR 2 lakhs. This value too, shall now be prescribed from time to time.
The much talked about (and much awaited) ones - Tax slab changes and rebate examples for income up to 12 lakhs - covered after our conclusion.
Conclusion (Our view):
Listening through the speech and going through a bit of fineprint post the speech, few things are clearly coming out -
Government is looking to adopt a more trust based, light touch kind of approach with respect to finance aspects as well as non finance aspects impacting finance. There were quite a few such parts in the speech, which we haven't been able to cover in this analysis.
Capex, agri reforms, MSMEs and Strategic divestment continues to be a priority still, it is just that not many details have been covered in the speech, but can be seen in the fineprint (provided in footnotes) - 11.2 lakh crore of Capex - may sound like flattish as compared to past budgets, but the amount is quite huge in itself.
Fiscal discipline continues to be a prime focus as well, which can be seen from the consistent beat on own targets and estimates year on year.
While doing all this, they have still managed to honor the long standing demand of Individual taxpayers, by doing a paradigm shift kind of changes in tax structure - leaving genuinely more money in the hands of taxpayers - overall it is approx INR 1.02 lakh crore, spanning across Direct taxes (1 lakh crore) and Indirect taxes (2 thousand crore) which are still within the remit of Central Government after GST.
Credit where due - despite the fact that the personal tax changes were long overdue - the honorable Finance Minister did it this time, while still ensuring no or minimal compromises on the other key focus areas. Yes, in terms of misses, there will always be aspects that one may feel, could have been covered, but everything may not always be possible!
Let us now move on to the examples in detail.
Examples:
Before we cover the slabs, we would like to cover the statement that is creating a lot of buzz - the statement which says that there will be no tax for people earning up to INR 12 Lakhs (or, in case of salaried taxpayers, including Standard deduction - INR 12.75 Lakhs). Many of you might be confused, that if there is no tax till INR 12 Lakhs, then why are there slabs starting from INR 4 Lakhs? This is explained here:
INR 4 Lakhs is the new basic exemption limit in the New Tax Regime (up from INR 3 lakhs earlier).
Hence, for incomes exceeding this limit, tax will be calculated in the normal manner.
However, for taxable incomes up to INR 12 Lakhs, there will be a rebate provided under section 87A, which will be equivalent to the tax liability computed for income of INR 12 Lakhs. Earlier, under the New Tax Regime, this limit was INR 7 Lakhs. Below is the illustration, as to how the Tax liability becomes 0 (we have taken a plain vanilla scenario, without any deductions etc):
| Particulars | New regime - new proposed |
| Income From Salary | 1,275,000.00 |
| Basic | 1,000,000.00 |
| Others | 275,000.00 |
| Exempt Incomes | |
| NPS Employer Contribution | 0% |
| NPS Employer Contribution | 0.00 |
| Petrol allowance | 0.00 |
| Food Coupons | 0.00 |
| Telephone | 0.00 |
| LTA | 0.00 |
| Standard Deduction | 75,000.00 |
| Net taxable income | 1,200,000.00 |
| Income from House Property | 0.00 |
| Total Income | 1,200,000.00 |
| Deductions: | |
| 80C | 0.00 |
| 80D | 0.00 |
| 80CCD(1B) | 0.00 |
| Gross Total Income | 1,200,000.00 |
| Tax on total income: | |
| Upto 250000 | 0.00 |
| 250001 - 300000 | 0.00 |
| 300001 - 400000 | 0.00 |
| 400001 - 500000 | 5,000.00 |
| 500001 - 600000 | 5,000.00 |
| 600001 - 700000 | 5,000.00 |
| 700001 - 750000 | 2,500.00 |
| 750001 - 800000 | 2,500.00 |
| 800001 - 1000000 | 20,000.00 |
| 1000001 - 1200000 | 20,000.00 |
| 1200001 - 1500000 | 0.00 |
| 1500001 - 1600000 | 0.00 |
| 1600001 - 2000000 | 0.00 |
| 2000001 - 2400000 | 0.00 |
| Above 2400000 | 0.00 |
| Total Tax before 87A Rebate | 60,000.00 |
| Less: 87A Rebate | 60,000.00 |
| Total Income tax | 0.00 |
| Cess | 0.00 |
| Total taxes payable | 0.00 |
As we see here - there is a rebate of INR 60,000 available, which makes the tax liability 0. Clearly, this is not the same as āBasic exemption limitā being INR 12 Lakhs!
One may ask, what if the Income ends up being, say, 12.1 Lakhs - where computed tax liability will be INR 61,500? There looks to be a clear disadvantage for earning that additional 10,000?
Answer is - No. This is where Marginal relief comes into the picture. This effectively means that this Tax liability of INR 61,500 will be compared with INR 10,000 - additional amount over INR 12 Lakhs. And the lower of the 2 will be taken as tax liability.
Accordingly in this case, 10,000 < 61500, hence Tax liability will be INR 10,000 + cesses. In terms of calculation, this may appear different, however, this illustration is for simplifying the provisions.
Though, it is important to note, that this benefit will still not apply on incomes taxable at Special rates. Meaning - if in the above example, the net INR 12 Lakhs included INR 1 lakh of Short Term Capital Gain (STCG), taxable at 20%, then there will be no tax on INR 11 Lakhs, but the STCG of INR 1 Lakh will be taxed at the special rate of 20%.
Let us now look at the Slab changes.
| Taxable Income | Rate |
| Upto 4,00,000 | Exempt |
| 4,00,001 - 8,00,000 | 5% |
| 8,00,001 - 12,00,000 | 10% |
| 12,00,001 - 16,00,000 | 15% |
| 16,00,001 - 20,00,000 | 20% |
| 20,00,001 - 24,00,000 | 25% |
| Above 24 Lakh | 30% |
Comparative slabs:
| Taxable Income | Old regime Tax Rates | New Regime - New Tax Rates | New Regime - New Tax Rates |
| Upto 250000 | Exempt | Exempt | Exempt |
| 250001 - 300000 | 5% | Exempt | Exempt |
| 300001 - 400000 | 5% | 5% | Exempt |
| 400001 - 500000 | 5% | 5% | 5% |
| 500001 - 600000 | 20% | 5% | 5% |
| 600001 - 700000 | 20% | 5% | 5% |
| 700001 - 750000 | 20% | 10% | 5% |
| 750001 - 800000 | 20% | 10% | 5% |
| 800001 - 1000000 | 20% | 10% | 10% |
| 1000001 - 1200000 | 30% | 15% | 10% |
| 1200001 - 1500000 | 30% | 20% | 15% |
| 1500001 - 1600000 | 30% | 30% | 15% |
| 1600001 - 2000000 | 30% | 30% | 20% |
| 2000001 - 2400000 | 30% | 30% | 25% |
| 2400000+ | 30% | 30% | 30% |
And this time, these are seriously big ones. The break even point of āDeductions foregoneā vs āBenefits in the New Tax Regimeā goes even higher. Below example shows how someone availing Deductions plus Tax Free Incomes of up to INR 5.66 lakhs too, who would have earlier had some advantage in the Old regime, could now be inclined to move to the New Tax Regime - due to the lower taxes, plus of course, the āno hassleā filing!
| Particulars | Old tax regime | New regime - existing | New regime - new proposed |
| Income From Salary | 2,500,000.00 | 2,500,000.00 | 2,500,000.00 |
| Basic | 1,500,000.00 | 1,500,000.00 | 1,500,000.00 |
| Others | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 |
| Exempt Incomes | |||
| NPS Employer Contribution | 10% | 14% | 14% |
| NPS Employer Contribution | 150,000.00 | 210,000.00 | 210,000.00 |
| Petrol allowance | 21,600.00 | 0.00 | 0.00 |
| Food Coupons | 26,400.00 | 0.00 | 0.00 |
| Telephone | 18,000.00 | 0.00 | 0.00 |
| LTA | 100,000.00 | 0.00 | 0.00 |
| Standard Deduction | 50,000.00 | 75,000.00 | 75,000.00 |
| Net taxable income | 2,134,000.00 | 2,215,000.00 | 2,215,000.00 |
| Income from House Property | -200,000.00 | 0.00 | 0.00 |
| Total Income | 1,934,000.00 | 2,215,000.00 | 2,215,000.00 |
| Deductions: | |||
| 80C | -150,000.00 | 0.00 | 0.00 |
| 80D | 0.00 | 0.00 | 0.00 |
| 80CCD(1B) | -50,000.00 | 0.00 | 0.00 |
| Gross Total Income | 1,734,000.00 | 2,215,000.00 | 2,215,000.00 |
| Tax on total income: | |||
| Upto 250000 | 0.00 | 0.00 | 0.00 |
| 250001 - 300000 | 2,500.00 | 0.00 | 0.00 |
| 300001 - 400000 | 5,000.00 | 5,000.00 | 0.00 |
| 400001 - 500000 | 5,000.00 | 5,000.00 | 5,000.00 |
| 500001 - 600000 | 20,000.00 | 5,000.00 | 5,000.00 |
| 600001 - 700000 | 20,000.00 | 5,000.00 | 5,000.00 |
| 700001 - 750000 | 10,000.00 | 5,000.00 | 2,500.00 |
| 750001 - 800000 | 10,000.00 | 5,000.00 | 2,500.00 |
| 800001 - 1000000 | 40,000.00 | 20,000.00 | 20,000.00 |
| 1000001 - 1200000 | 60,000.00 | 30,000.00 | 20,000.00 |
| 1200001 - 1500000 | 90,000.00 | 60,000.00 | 45,000.00 |
| 1500001 - 1600000 | 30,000.00 | 30,000.00 | 15,000.00 |
| 1600001 - 2000000 | 40,200.00 | 120,000.00 | 80,000.00 |
| 2000001 - 2400000 | 0.00 | 64,500.00 | 53,750.00 |
| Above 2400000 | 0.00 | 0.00 | 0.00 |
| Total Income tax | 332,700.00 | 354,500.00 | 253,750.00 |
| Cess | 13,308.00 | 14,180.00 | 10,150.00 |
| Total taxes payable | 346,010.00 | 368,680.00 | 263,900.00 |
| Net advantage / (disadvantage) vs Old regime | -22,670.00 | 82,110.00 | |
Net advantage / (disadvantage) New v New regime | 104,780.00 |
And of course, when comparing New regime vs New regime, it is an even bigger advantage.
We are aware that there can be instances where there could be many more permutations & combinations. Hence the above example should be used as a reference only. We are happy to provide you customised consultations on a case to case basis!
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Footnotes:
Link to Budget Speech, Finance bill, Memorandum