Double-engine growth — driving consumption with fiscal prudence: Edelweiss MF’s Radhika Gupta

Finance Minister Nirmala Sitharaman presented the Budget for 2025-26 on February 1.

Budget 2025 has gone on to accomplish two critical tasks required to jumpstart the economy — drive consumption and yet manage healthy fiscal consolidation.

At a time when the demand environment was weak, consumption was anaemic and the middle class as well those earning higher incomes were clamouring for tax relief, the Union Budget 2025 managed to satisfy a large swathe of the population.

While the substantial reworking of the income-tax slabs is singularly the main announcement made by the finance minister, there are other key areas that need specific mention from an investor’s perspective.

Increase in the tax deduction at source (TDS) and the tax collected at source (TCS) thresholds on investment avenues and overseas remittances, clarity and reduction in the taxation of unit-linked insurance plans (ULIPs) also ease considerable challenges for depositors and investors.

Raising rebate slabs

In the new tax regime, the taxable threshold has been increased by a whopping Rs 5 lakh to Rs 12.75 lakh (including Rs 75,000 standard deduction) from Rs 7.75 lakh currently.

Of course, this is a rebate and it is to be noted that those with salary earning of more than Rs 12.75 lakh will start paying taxes starting from Rs 4 lakh.

Also read | How will Budget 2025 impact fixed income investments, debt funds?

Another key aspect is that the 30 percent income tax will apply only on incomes starting from Rs 24 lakh on and not from Rs 15 lakh as is the case.

The rejigging of the slabs would mean that a person earning Rs 20 lakh will save Rs 90,000 every year, while a salaried individual making Rs 24 lakh will benefit to the tune of Rs 1.1 lakh.

And the introduction of a 25 percent slab and gradual tax blocks in multiples of 5 percent from the initial slab are welcome moves.

Clearly, the idea of putting more money in the hands of the middle class has been put into concrete action.

These rebates are expected to add Rs 1 trillion in savings annually in the hands of the salaried.

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Easing deductions and lower taxes

One key demand from depositors, especially elderly, was that the TDS threshold was too low. For those dependent on interest income for their retirement, a lower threshold ate into their cashflows.

The Budget has increased the threshold for TDS (at 10 percent) from Rs 50,000 to Rs 1 lakh in the case of senior citizens. So, only if the interest income from deposits exceeds Rs 1 lakh would there be TDS applicable.

Income from dividends would also be taxed from a level of Rs 10,000 or higher compared to Rs 5000 now.

Also read | Hike in basic exemption limit, rejig of tax slabs mean big savings for taxpayers

For those sending their children abroad for studies, there a reason to cheer. The threshold for TCS (at 0.5%) in the case of overseas remittances via education loans has been increased from Rs 7 lakh to Rs 10 lakh.

Another key aspect relates to the taxation of ULIPs. Earlier, gains from ULIPs where annual premiums were more than Rs 2.5 lakhs were treated as other income and taxed at the applicable marginal slab of an investor. Now, these gains would be treated as capital gains and taxed at 12.5% beyond the holding period of more than one year, bringing parity with other market-linked investments.

Fiscal prudence and reinforced capex investments

Despite these giveaways, the Budget has continued on the path of fiscal prudence while maintaining spends on infrastructure.

For FY26, the Budget has projected a fiscal deficit of only 4.4% less than 4.5% expected earlier and market borrowings are almost unchanged from the previous year at Rs 11.54 trillion.

Therefore, the longer dated securities, especially the 10-year g-secs should react positively to path of fiscal consolidation, with yields trending down reasonably.

Another key positive is the slight increase in infrastructure outlay, at Rs 11.2 trillion for the coming fiscal.

Overall, the Budget has juggled multiple challenges and come out triumphant by meeting economic challenges and yet satisfying key stakeholders.

Also read | Big boost to the middle class: No tax on incomes up to Rs 12 lakh under the new regime, says FM

The author is managing director and chief executive officer at Edelweiss Mutual Fund

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