Nirmala Sitharaman Unveils Income Tax Cuts for Middle Class in Latest Budget Announcement

Finance Minister Nirmala Sitharaman announced notable income tax reductions for the middle class and outlined future reforms for Viksit Bharat. The exemption threshold for individuals was raised to Rs 12 lakh annually, eliminating taxes for many. A standard deduction of Rs 75,000 is now available for salaried individuals. This budget aims to balance fiscal responsibility with economic growth.

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The revised tax structure will benefit 6.3 crore people, over 80% of taxpayers. Those earning up to Rs 25 lakh annually can save up to Rs 1.1 lakh in taxes. Sitharaman stated that raising the rebate will result in 1 crore people not paying any tax. This change is expected to boost household consumption, savings, and investment.

Investment and Infrastructure Focus

The budget proposes increasing foreign investment in the insurance sector to 100% from the current 74%. It also continues infrastructure spending while increasing allocations for social sectors and measures for the poor, youth, farmers, and women. Despite these initiatives, the fiscal deficit is projected at 4.4% of GDP in FY26, down from an estimated 4.8% this year.

Prime Minister Narendra Modi described the budget as a "people's budget" that supports every Indian's dreams. He believes it will enhance consumption, investment, and growth. The budget aims to increase savings and involve citizens in development efforts.

Economic Growth Amidst Global Challenges

Sitharaman's budget focuses on boosting consumption and investment to stimulate domestic economic activity amid global uncertainties. It maintains support for infrastructure development and continues backing the MSME and agricultural sectors. Duty cuts on intermediaries and life-saving drugs were also announced.

To offset revenue losses, capital spending will rise modestly to Rs 11.21 lakh crore next year from Rs 10.18 lakh crore this fiscal year. Increased dividends from the Reserve Bank and other government-owned financial institutions are expected to help contain losses.

Additional Announcements

The finance minister announced a social security cover for nearly 1 crore gig workers and a Rs 10,000 crore fund for startups. A target of at least 100 gigawatts of electricity from nuclear energy by 2047 was set, along with amendments to nuclear liability regulations to allow private sector investment.

Duties on various goods were reduced, including open cells, while critical minerals like cobalt and lithium-ion battery scraps were exempted from import duty. The threshold for tax collected at source on remittances under RBI's Liberalised Remittance Scheme was raised from Rs 7 lakh to Rs 10 lakh.

Taxation Adjustments

TDS provisions were rationalised with increased thresholds ranging from Rs 5,000 to Rs 50,000 across various provisions. The TDS threshold on rent rose from Rs 2.40 lakh to Rs 6 lakh. Higher TDS/TCS rates now apply to non-filers.

Christian de Guzman from Moody's Ratings commented: "As the government unveiled its budget for 2025-26 amid a somewhat dampened macroeconomic backdrop as compared to recent years, it has had to slow the pace of fiscal consolidation to provide firmer support to growth."

He added that tax relief measures have constrained revenue growth, which will rise at its slowest pace since 2022-23. Falling expenditure as a share of GDP has borne the brunt of narrowing the fiscal deficit while maintaining capital expenditure emphasis.

The Union government remains on track with near-term policy goals but may not sufficiently improve its debt burden or debt servicing proportion compared to its investment-grade peers.