India's Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, introduces the most significant tax exemption in over two decades.
Under the new tax regime, individuals earning up to Rs 12,00,000 annually will pay no income tax, offering major relief to the salaried middle class.
With the standard deduction of Rs 75,000, the exemption for salaried taxpayers rises to Rs 12,75,000, continuing the Modi government’s trend of easing the tax burden on middle-class earners.
The latest tax exemption marks a significant increase from the Rs 700,000 limit in 2023, the largest rise since 2005.
Union Home Minister Amit Shah hailed it as Prime Minister Modi’s commitment to the middle class. On X, he wrote, "The middle class is always in PM Modi's heart. Zero Income Tax up to Rs 12,00,000 will greatly enhance their financial well-being. Congratulations to all the beneficiaries."
Tax-free incomes up to ₹12,00,000
To boost household consumption and demand, Sitharaman announced that incomes up to ₹12,00,000 will be tax-free. With the standard deduction of ₹75,000, the revised limit under the new tax regime is now ₹12,75,000.
To ease tax burdens for small taxpayers, Sitharaman proposed a revision in tax slabs and measures to rationalize TDS and TCS structures. The new structure aims to reduce taxes for the middle class, increasing disposable income to boost consumption, savings, and investment. Under the revised slabs, incomes up to ₹400,000 will be tax-free, while the highest slab for incomes over ₹24,00,000 will have a 30% tax rate. For example, a ₹12,00,000 income will benefit from ₹80,000 in tax savings, while ₹18,00,000 earners will save ₹70,000.
Budget boosts farmers and MSMEs with new initiatives
Farmers and MSMEs were significant beneficiaries of Sitharaman's budget. She announced the launch of the Pradhan Mantri Dhan Dhanya Krishi Yojana in 100 underperforming districts, aimed at benefiting 17mn farmers. The Kisan Credit Card scheme was extended, with the short-term loan limit increased from ₹300,000 to 500,000, helping 77mn farmers, fishermen, and dairy farmers. Sitharaman also introduced the Mission for Pulses Self-Reliance, a six-year initiative to boost productivity and farmer income. Additionally, the Rural Prosperity and Resilience Programme was set up to support rural women, young farmers, and marginalised communities.
New measures to enhance ease of doing business
Sitharaman introduced several measures to enhance Ease of Doing Business (EODB), including raising the FDI cap in insurance for firms investing all premiums in India from 74% to 100%. She also announced the creation of a new KYC registry, faster approval processes for company mergers, and the launch of an Investment Friendliness Index for states. Experts welcomed the move to increase FDI and the establishment of a ₹100 billion fund to support startups. This fund will provide loans up to £200,000 to first-time entrepreneurs, with a focus on women, Scheduled Castes, and Scheduled Tribes.
Slew of projects for Bihar
Wearing a Madhubani saree from Bihar's Mithila region, Sitharaman announced several key projects for Bihar ahead of this year's Assembly elections. Among the initiatives were the establishment of a Makhana board, a National Institute of Food Technology, Entrepreneurship and Management, and the expansion of Patna airport, including a new brownfield airport. Additionally, she highlighted support for the Western Kosi Canal ERM project in Mithilanchal, which aims to benefit farmers cultivating 50,000 hectares of land.
Development in the tourism sector
Sitharaman unveiled a plan to transform 50 destinations into world-class tourist hubs as part of the Union Budget 2025. This initiative includes the development of Buddhist circuits and medical tourism facilities, alongside a significant increase in the tourism ministry’s budget to £254.10mn for 2025-26, up from £85.03mn in 2024-25.
Sitharaman emphasised that the tourism strategy will focus on employment-led growth, with states required to contribute land for infrastructure. Key initiatives also include extending MUDRA loans to homestays, e-visa facilitation, visa fee waivers for select groups, and the launch of the ‘Heal in India’ program for medical tourism.
The government has boosted infrastructure funding, with the Swadesh Darshan scheme receiving £190mn, up from £35mn last year, while the PRASHAD scheme for pilgrimage tourism remains at £24mn.
The Economic Survey 2024-25, released before the budget, revealed that tourism contributed 5% to GDP in FY23, with 76 million jobs created and international tourist arrivals returning to pre-pandemic levels. India captured 1.45% of global arrivals in 2023, earning $28 billion in foreign exchange and ranking 14th in tourism receipts.
A key announcement was the launch of the Gyan Bharatam Mission, aimed at preserving India’s manuscript heritage. The initiative will involve academic institutions, museums, and private collectors to document and conserve over 10mn manuscripts, creating a National Digital Repository for India’s intellectual heritage.
Plans for other sectors
India Inc. found little to celebrate in this budget, with no major tax cuts or incentives for MNCs. While MSMEs received some attention, large industries and multinationals saw limited benefits, lacking significant corporate tax cuts or regulatory relaxations to boost competitiveness.
The Indian Railways was allocated £25.5bn, slightly lower than the previous fiscal’s £26.2bn, potentially slowing expansion projects.
Sitharaman announced healthcare measures, including 200 day care cancer centres, 10,000 new medical seats by 2025-26, and 50,000 new labs in government schools. However, these were seen as insufficient, given India’s low healthcare spending of 3.3% of GDP, compared to 5.4% in China and 16% in the US.
Environmentalists were also underwhelmed by the budget, which included a Clean Tech Manufacturing scheme with incentives for EV batteries and solar PV cells, but lacked significant reform.
Major boost to defence spending
Sitharaman earmarked £68.1bn for the Ministry of Defence for the financial year 2025–26, a 9.55% increase from the £62bn allocated last year. The budget is a testament to the government’s strategic intent to strengthen military preparedness as India navigates an ongoing standoff with China while also addressing security concerns along its western border with Pakistan. In addition to operational challenges, the Ministry of Defence is making efforts to ensure the welfare of both active and retired personnel.
Revenue expenditure typically covers the daily operational costs of the armed forces, including salaries, equipment maintenance, ammunition, and other consumables. The rise in allocation reinforces India’s commitment to keeping its armed forces battle-ready and capable of responding to emerging security threats.
The capital outlay for 2025–26 has been set at £18bn, compared to £17.2bn in the previous fiscal year. This funding is crucial for the modernisation of the armed forces and the procurement of advanced systems, equipment, and weaponry.
Another key aspect of the budget is the larger contribution to defence pensions, which have risen from £14.1bn in 2024–25 to £16bn in 2025–26, marking a 13.5% increase. The allocation would ensure financial security for retired defence personnel and their families, reinforcing the government’s commitment to their welfare.
