Union Budget Highlights 2025: Higher tax exemptions, TDS relief, and startup boost in new tax reforms

Finance Minister Nirmala Sitharaman presented the first full Union Budget of Prime Minister Narendra Modi’s third term on February 1, marking her record eighth consecutive Budget which lasted for one hour and 17 minutes. This brings her closer to Morarji Desai’s milestone of 10 Budget presentations.

The Union Budget 2025 comes at a pivotal moment, with India’s economic growth slowing to a four-year low and global uncertainties—fueled by U.S. tariff threats and geopolitical tensions—posing fresh challenges. Against this backdrop, the Budget laid out a roadmap for economic resilience, focusing on tax relief, infrastructure expansion, and sectoral reforms. With significant income tax cuts, higher exemptions, and fresh incentives for startups and MSMEs, the government aims to boost middle-class incomes and drive long-term sustainable growth.

New Income Tax Regime: Higher Exemptions, Simplified Slabs

• No Tax Up to Rs 12 Lakh: Individuals earning up to Rs 12 lakh annually will not have to pay income tax.


• Tax Relief for Higher Incomes: Those earning Rs 25 lakh will get a benefit of Rs 1.1 lakh under the new regime.


• Revenue Impact: The exemptions will lead to Rs 1 lakh crore in direct tax revenue foregone and Rs 2,600 crore in indirect tax losses.

• Up to Rs 4 lakh – No tax


• Rs 4 lakh – Rs 8 lakh – 5%


• Rs 8 lakh – Rs 12 lakh – 12%


• Rs 12 lakh – Rs 16 lakh – 15%


• Rs 16 lakh – Rs 20 lakh – 20%


• Rs 20 lakh – Rs 24 lakh – 25%


• Above Rs 24 lakh – 30%

• Higher Tax Exemption: Under the new income tax regime, there will be no income tax for individuals earning up to Rs 12 lakh annually.


• Relief for Middle-Class Taxpayers: The new tax reform focuses on easing the burden on the middle-income group.


• TDS & TCS Rationalisation: The number of TDS rates and thresholds will be reduced to simplify compliance.


• Higher TCS Threshold for LRS: The TCS threshold on remittances under the Liberalised Remittance Scheme (LRS) has been raised from Rs 7 lakh to Rs 10 lakh.


• TDS Relief on Rent: The TDS threshold on rent has been increased to Rs 6 lakh.


• Education Loan Exemption: TCS on education loans up to Rs 10 lakh (from specified financial institutions) will be removed.


• Decriminalization of TCS Delay: Delayed payment of TCS will no longer be treated as a criminal offense.


• More Time for Taxpayers: The time limit to file updated tax returns has been extended from 2 years to 4 years.


• Self-Occupied Property Valuation: Taxpayers can now declare the value of two self-occupied properties as nil.


• International Tax Relief: The scope of safe harbor rules will be expanded to reduce international tax litigation.


• Support for Startups: The period of incorporation for startups to avail of tax benefits has been extended by five years.

• TDS Rationalization: The government will rationalize the Tax Deducted at Source (TDS) by reducing the number of rates and thresholds, making the process more taxpayer-friendly.


• Increased TCS Threshold for LRS: The threshold limit for Tax Collected at Source (TCS) on remittances under the Liberalized Remittance Scheme (LRS) has been hiked from Rs 7 lakh to Rs 10 lakh.


• Higher TDS Threshold on Rent: The TDS threshold on rent payments has been raised to Rs 6 lakh, providing relief to individuals and businesses dealing with rental income.


• Exemption on Education Loans: The Budget proposes to remove TCS on education loans up to Rs 10 lakh from specified financial institutions, easing the process for students and their families.

• Seven Tariff Rates to be Removed: Additional to those removed in previous budgets.


• Exemption on Social Welfare Surcharge: 82 tariff lines currently under cess will be exempted.


• 36 Life-Saving Drugs: Added to the list of medicines fully exempt from Basic Customs Duty (BCD).


• Increase in BCD on Flat Panel Displays: From 10% to 20%.


• Exemption on Critical Minerals: 12 more critical minerals will be exempt from BCD.


• Addition of 35 Capital Goods: For EV manufacturing, will be included in the BCD exemption list.


• Customs Duty Reduction: Open-cell customs duty reduced to 5%.

• Fiscal Deficit Projections: FY25 fiscal deficit estimated at 4.8% of GDP, with FY26 target at 4.4%.


• FY26 Tax Receipts: Net tax receipts for FY26 estimated at Rs 28.37 lakh crore.


• Market Borrowing: Gross market borrowing for FY26 projected at Rs 14.82 lakh crore.


• Tariff Adjustments: Proposal to remove 7 tariff rates, in addition to those eliminated in previous budgets.


• Capex for FY25: Revised capital expenditure for FY25 set at Rs 10.18 lakh crore.

• Insurance FDI Limit Raised: Foreign Direct Investment in insurance increased from 74% to 100%.


• New Income Tax Bill: A new income tax bill will be introduced next week.


• Central KYC Registry: Central KYC registry to be rolled out in 2025 for streamlined financial processes.

• The top 50 tourism destination sites will be developed in partnership with states to boost tourism across India.


• States will provide land for the development of tourist sites, with a focus on enhancing infrastructure.


• Mudra loans will be made available for homestay businesses to encourage local tourism.


• A focus will be placed on promoting medical tourism and "Heal-in-India" initiatives to attract international patients.


• A deeptech fund-of-funds will be explored to support technological innovation and startups in the sector.


• A National Geospatial Mission will be launched to enhance spatial data and mapping capabilities for better planning and development.

• Aiming for 100 GW of nuclear energy by 2047 to support India’s energy transition.


• A nuclear energy mission will focus on research and development of small modular reactors, with an outlay of Rs 20,000 crore.


• States will be allowed additional borrowing of 0.5% of their Gross State Domestic Product (GSDP) upon implementing select reforms.


• The shipbuilding financial assistance policy will be revamped to boost the industry.


• A maritime development fund with a corpus of ₹25,000 crore will be set up to support the sector.


• The modified Udaan scheme will be launched to connect 120 new destinations across India.


• Financial support will be provided for the development of greenfield airports in Bihar.


• The Western Kosi Canal project in Bihar will also receive financial backing.

• Broadband connectivity will be provided to all government secondary schools and primary healthcare centres.


• Five National Centers of Excellence for Skilling will be established to boost vocational training.


• Additional infrastructure will be provided for the five IITs established after 2014.


• Three Centres of Excellence in Artificial Intelligence for education will be set up, with a ₹500 crore outlay.


• Day-care cancer centres will be established in every district within three years, with 200 centres planned for 2025-26.


• 10,000 new seats in medical colleges and hospitals will be added in FY26.


• A new social security scheme for gig workers will be launched, providing E-shram portal registration and insurance.


• Each infrastructure-related ministry will draft a three-year plan for implementation in Public-Private Partnership (PPP) mode.


• Rs 1.5 lakh crore in 50-year interest-free loans will be provided to states for capital expenditure (Capex).


• An asset monetisation plan will be launched for the period until FY30.


• An Urban Challenge Fund will be established with an investment of Rs 1 lakh crore.


• Memorandums of Understanding (MoUs) will be signed with states under the Jal Jeevan Mission to boost water supply infrastructure.

• Agricultural programme targeting 100 districts with low productivity.


• Dhan Dhanya Krishi Yojana to focus on these 100 low-productivity districts.


• The agricultural initiative aims to support 1.7 crore farmers.

• A national mission to promote high-yielding seeds will be launched.


• A 5-year mission will be launched to boost cotton production in the country.


• An enabling framework for the sustainable harnessing of fisheries in India's Exclusive Economic Zone (EEZ) will be introduced.


• The loan income under the new Kisan scheme will be raised to Rs 5 lakh from Rs 3 lakh

• India Post will be transformed into a large public logistics organization.


• MSMEs will be the second engine of growth, focusing on 5.7 crore MSMEs.


• Credit guarantee cover for MSMEs will be increased from Rs 10 crore to Rs 20 crore for startups.


• Customised credit cards with a Rs 5 lakh limit will be issued to micro SMEs.


• A new fund-of-funds with Rs 10,000 crore support will be established for startups.


• A new scheme for the footwear and leather sector will generate employment for 22 lakh people and attract investments of Rs 4 lakh crore.


• A scheme will be implemented to position India as a global manufacturing hub for the toys sector.

• A National Manufacturing Mission will be set up to further strengthen the "Make in India" initiative.


• A new urea plant with a capacity of 1.27 lakh tonnes will be established in Namrup, Assam.


• Efforts will be made to create an ecosystem for solar photovoltaic (PV) cells, electrolysers, and grid-scale batteries.


• 50,000 Atal Tinkering Labs will be set up to foster innovation and creativity.


• Broadband connectivity will be provided to all government secondary schools and primary healthcare centres.


• Five National Centers of Excellence for Skilling will be established to promote vocational training and skill development.

• Geopolitical headwinds suggest lower global economic growth.


• India's track record over the past 10 years has drawn global attention.

• The Budget will focus on 10 broad areas, including:


• Supporting MSMEs & promoting exports.


• Agricultural growth and rural prosperity.


• Manufacturing and financial inclusion.


• Inclusive Growth and Development


• Special focus on the poor, youth, farmers, and women.


• Sector-Specific Plans


• Taxation reforms.


• Power sector development.


• Urban development initiatives.