Budget 2025 Expectations Live: CII urges Budget 2025-26 to boost consumption, ease inflation

The financial sector, especially banks on Thursday made a case for tax sops in the upcoming Budget for fixed deposits to support savings which have seen reduction in recent past. Suggestions regarding improving efficiency of capital markets and increasing capital market inclusion were also made during the pre-Budget meeting with Finance Minister, Edelweiss Mutual Fund MD & CEO Radhika Gupta told PTI.

Ahead of the presentation of Union Budget 2025, speculation is rife that people who save money in Fixed Deposits (FDs) might receive a significant tax relief as interest earned on bank FDs is taxed according to the individual’s income tax bracket.

According to News18, reports suggest that during a pre-budget meeting with Finance Minister Nirmala Sitharaman, financial institutions, particularly banks, might have advocated for tax incentives on fixed deposits (FDs) to stimulate savings growth. This suggestion comes in the wake of a recent dip in savings, which has led to banks experiencing a shortage of funds available for lending.

The Apparel Export Promotion Council (AEPC), an apparel exporters body,  on Saturday urged the government to introduce tax incentives in the upcoming Budget. Their requests include removing the requirement to settle payments to MSMEs within 45 days to claim tax deductions and exempting customs duties on garment machinery imports.

AEPC also called for the announcement of a 5% interest equalization rate, highlighting the importance of these measures ahead of the Budget presentation by Finance Minister Nirmala Sitharaman on February 1.

Agriculture minister Shivraj Singh Chouhan on Saturday reviewed various schemes with state agriculture ministers and sought their suggestions on ongoing programmes and budget allocation ahead of the Union Budget.

During a virtual meeting, Chouhan expressed satisfaction over the agriculture and allied sector's likely higher growth rate of 3.5-4 per cent in the 2024-25 fiscal year, and urged state governments to work at a "faster pace", according to an official statement. (PTI)

CII highlights a worrying decline in bank deposits as a share of household financial assets, from 56.4% in FY20 to 45.2% in FY24. The proposed measures aim to reverse this trend by incentivizing savings and increasing disposable incomes.

To encourage bank deposit growth, CII proposes taxing interest income from deposits at a lower rate. It also recommends reducing the lock-in period for fixed deposits with preferential tax treatment from five to three years.

The industry body suggests introducing consumption vouchers aimed at low-income groups. These vouchers would stimulate demand by being valid for specific goods and services over 6-8 months. Beneficiaries could include Jan-Dhan account holders not covered under other welfare schemes.

CII recommends revising the unit costs under the PMAY-G and PMAY-U schemes, which have remained unchanged since their launch, to reflect current realities and improve housing affordability.

CII proposes raising the daily wage under MGNREGS from Rs 267 to Rs 375, as recommended by a 2017 expert committee, requiring an additional Rs 42,000 crore. This measure aims to strengthen rural demand and improve livelihoods.

CII recommends reducing excise duty on fuel, which makes up 21% of petrol and 18% of diesel prices, to lower inflation and boost disposable incomes. Despite a 40% drop in global crude prices since May 2022, fuel duties have remained unchanged.

Deloitte India highlights increased global trade volatility post-US elections, warning of potential impacts on Indian exports as the nation targets $2 trillion by 2030. The government is expected to focus on tariff rationalization, duty exemptions, and simpler compliance to enhance export competitiveness.

Infrastructure investment, a key growth driver, has risen from 1.63% of GDP in FY2019 to 3.4% in FY2025. Deloitte anticipates continued spending on roads, logistics parks, and digital infrastructure, alongside health, education, and skilling initiatives. These efforts aim to drive productivity and support India’s vision of "Viksit Bharat" by 2047.

Deloitte India highlights inflation as a critical ongoing challenge for the economy, with food inflation being a primary concern. The Economic Survey 2024 has recommended excluding food prices from India’s inflation targeting framework, as food inflation is mainly supply-driven. The suggestion is for the government to tackle food inflation through supply-side measures rather than relying on the RBI’s demand-side tools.

Deloitte anticipates that the upcoming budget will prioritize long-term solutions to strengthen the agricultural value chain, incentivize production, and address structural supply-side issues that contribute to higher delivery costs. In the short term, the government is expected to implement Direct Benefit Transfers (DBTs) and food coupons to support rural consumption, as higher rural inflation significantly impacts rural demand.

Deloitte India anticipates that private consumption and investment activity will be the primary growth pillars for India in FY 2025, as global uncertainties continue to affect net exports. With the conclusion of the Indian elections, government spending is expected to rise, further supporting economic growth in the upcoming quarters.

The previous budget placed a significant focus on employment generation and skill development, introducing initiatives like Employment-Linked Incentives and internship programs. According to the Periodic Labour Survey, the Labour Force Participation Rate (LFPR) for both men and women increased to 74.7% and 25.2%, respectively, in June 2024, compared to 73.5% and 23.2% in June 2023. Alongside this, the unemployment rate has steadily declined.

Deloitte expects the government to continue prioritizing skill development and job creation, which will help leverage India's demographic dividend and stimulate growth. This will boost consumption through higher incomes while driving economic activity from both supply and demand sides.

The real estate sector, which is valued at over $300 billion, is closely watching the upcoming Budget for supportive measures. After facing a 4% drop in housing sales in 2024 due to rising prices, high borrowing costs, and supply constraints, developers are hoping for a boost.

Developers are advocating for an increase in the deduction limit on home loan interest to stimulate demand in affordable and mid-income housing. Additionally, there have been calls for a redefinition of affordable housing and expansion of Section 80C benefits, alongside interest rate reductions, to make housing more accessible.

Finance Minister Nirmala Sitharaman chaired the seventh pre-Budget consultation with stakeholders from the financial sector and capital markets. The meeting was attended by key officials including Finance Secretary, Secretary of the Department of Economic Affairs, Secretary of Financial Services, and the Chief Economic Adviser.

The full Union Budget 2025-26 is set to be presented in Parliament on February 1, with expectations high that the government will address these critical issues to strengthen India's financial sector and promote sustainable growth.

Further suggestions included the removal of Tax Deducted at Source (TDS) on non-individual borrowers. According to industry representatives, this provision does not generate additional revenue and removing it could ease the burden on businesses and encourage borrowing.

In another significant recommendation, Aggarwal urged the government to make amendments to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act to benefit smaller NBFC players. The current limit under the Act is set at Rs 20 lakh, and it was suggested that this threshold be reduced to ensure that smaller NBFCs could take advantage of this legal framework for recovery.

The NBFC sector also presented its case for a direct refinance window for green finance and electric vehicles (EVs). Raman Aggarwal, Director of the Finance Industry Development Council (FIDC), stressed the need for a dedicated refinancing fund to support MSMEs, small borrowers, and eco-friendly investments like electric vehicles. He proposed that institutions such as SIDBI and NABARD could serve as intermediaries to provide this refinance, similar to the mechanism already in place for housing finance companies under the National Housing Bank.

In addition to advocating for tax benefits on fixed deposits, the financial sector also called for measures to enhance the efficiency of capital markets and promote broader capital market inclusion. Radhika Gupta, MD & CEO of Edelweiss Mutual Fund, mentioned that recommendations were made to incentivize long-term savings, both in debt and equity, to help boost investor participation.

The financial sector has been actively pushing for reforms that would increase access to capital markets for a wider population, which could foster economic growth and financial inclusion.

A key proposal from the banking sector was the introduction of tax incentives for fixed deposits (FDs). With savings in fixed deposits declining in recent years, banks emphasized the need for tax relief to encourage individuals to invest in these secure saving instruments. The proposal aims to make fixed deposits more attractive by reducing the tax burden on returns generated from these deposits.

Currently, income tax is levied on the returns from term deposits, which many believe discourages savers from opting for FDs. The financial sector representatives suggested aligning long-term capital gain tax with that of fixed deposits to help encourage savings.

The Old Tax Regime, while imposing higher tax rates, allows individuals to claim a range of exemptions and deductions. Here are the current income tax slabs under the Old Tax Regime (for FY 2024-25):

Income up to Rs 2,50,000: Nil

Income from Rs 2,50,001 to Rs 7,00,000: 5%

Income from Rs 7,00,001 to Rs 10,00,000: 10%

Income from Rs 10,00,001 to Rs 12,00,000: 15%

Income from Rs 12,00,001 to Rs 15,00,000: 20%

Income above Rs 15,00,000: 30%

For senior citizens (aged 60-80 years), the basic exemption limit is Rs 3,00,000, and for super senior citizens (aged 80 and above), it is Rs 5,00,000. Additionally, individuals can avail themselves of exemptions such as HRA and deductions like those under Sections 80C, 80D, and Section 24(b) for home loan interest.

New Tax Regime: Simplicity Over Exemptions

The New Tax Regime, which was introduced in the 2020 Union Budget, offers lower tax rates but comes with limited exemptions and deductions. The current tax slabs under the New Tax Regime (for FY 2024-25) are as follows:

Income up to Rs 3,00,000: Nil

Income from Rs 3,00,001 to Rs 7,00,000: 5% (Tax rebate under Section 87A up to Rs 7 lakh)

Income from Rs 7,00,001 to Rs 10,00,000: 10%

Income from Rs 10,00,001 to Rs 12,00,000: 15%

Income from Rs 12,00,001 to Rs 15,00,000: 20%

Income above Rs 15,00,000: 30%

While the tax rates are lower, taxpayers under this regime must forgo popular exemptions like HRA, LTA, and deductions under Sections 80C, 80D, and others. However, a standard deduction of Rs 75,000 for salaried employees and Rs 25,000 for family pensioners is available.

Startups and MSMEs may benefit from enhanced access to credit, simplified tax procedures, and measures to foster innovation and job creation.

Meanwhile, healthcare and education, two key pillars of social infrastructure, are expected to receive increased allocations. Initiatives could include strengthening public health facilities, digital learning platforms, and vocational training programs.

Capital expenditure (capex) is expected to remain a focal point, with the government likely to announce major allocations for infrastructure development, including roads, railways, and urban projects. This comes against the backdrop of slowing GDP growth, which necessitates renewed public spending to drive economic momentum.

• Granting infrastructure status to EV charging stations.
• Increasing performance-linked incentives for domestic EV manufacturing to reduce dependency on imports.

Amid high inflation and rising living costs, the industry has called for a cut in excise duty on petrol and diesel. Puri also emphasized that lowering excise duty on petroleum products could provide consumers with more disposable income, creating a virtuous cycle of demand growth.

Middle-class taxpayers eagerly await a potential reduction in income tax for individuals earning up to ₹15 lakh annually, which could increase disposable income and stimulate consumer spending.

Industry bodies like the Confederation of Indian Industry (CII) have also recommended further relief. According to Sanjiv Puri, Chairman of CII, “From a perspective of boosting consumption, we have suggested relief in marginal tax rates for income up to ₹20 lakh. This would enhance disposable income, drive consumption, and, in turn, lead to revenue buoyancy.”

The groundwork for these reforms was laid during the Budget 2024-25, when FM Sitharaman announced a comprehensive review of the Income Tax Act. The review committee, chaired by Chief Commissioner of Income Tax V.K. Gupta, is expected to present its recommendations soon.

Finance Minister Nirmala Sitharaman will unveil the Union Budget for FY 2025-26 on February 1, 2025, marking her eighth consecutive presentation. As India navigates a challenging economic landscape, this budget—set to begin at 11:00 am IST in the Lok Sabha—comes with high expectations for structural reforms and growth-focused initiatives. Stay tuned as we break down what’s at stake in the Modi government’s second full-fledged budget of its third term.