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Union Budget 2025-26: A comprehensive analysis of direct taxes, custom duties, and sector-wise reforms

Personal Finance
4 min Read Feb 1, 2025
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The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, has introduced transformative reforms across six key sectors—power, mining, urban development, financial sector, regulatory reforms, and taxation. With a focus on bolstering economic growth, simplifying tax structures, and providing relief to individuals and businesses, this budget sets the tone for India's economic trajectory over the next five years.

Direct tax reforms: Simplification and relief for taxpayers

The government has implemented significant changes to the new tax regime 2025, making it more attractive and accessible for taxpayers.

  1. Increased tax exemption limit under the new tax regime

The Union Budget highlights include an increase in the tax exemption limit under the new tax regime from ₹7 lakh to ₹12 lakh. This move is expected to benefit middle-income earners by enhancing disposable income and boosting consumption.

  1. Reduction in tax slabs

The number of tax slabs under the new tax regime 2025 has been reduced from six to four, simplifying the tax structure. The revised new income tax slab is as follows:

Up to ₹12 lakh: Nil

₹12-15 lakh: 10%

₹15-20 lakh: 20%

Above ₹20 lakh: 30%

This change provides a clear contrast to the old tax regime, which had more complex brackets and deductions.

For example, for the income tax calculation for ₹13 lakh income

Income slabs and tax rates:

₹0-₹4 lakh: Nil

₹4-₹8 lakh: 5%

₹8-₹12 lakh: 10%

₹12-₹16 lakh: 15%

₹16-₹20 lakh: 20%

₹20-₹24 lakh: 25%

Above ₹24 lakh: 30%

Step-by-step calculation

Income up to ₹4 lakh: ₹0 (Nil tax)

Income from ₹4-8 lakh: ₹4 lakh × 5% = ₹20,000

Income from ₹8-12 lakh: ₹4 lakh × 10% = ₹40,000

Income from ₹12-13 lakh: ₹1 lakh × 15% = ₹15,000

Total tax before rebate: ₹75,000

Rebate applied: ₹60,000 (for income up to ₹12 lakh)

Final tax payable: ₹15,000

This structure ensures that taxpayers benefit from a simplified approach compared to the old tax regime, making compliance easier.

  1. Standard deduction and home loan deductions

Under the new tax regime, the standard deduction has increased from ₹50,000 to ₹75,000, while the home loan interest deduction under Section 24 is now ₹3.5 lakh. This benefits homebuyers, making homeownership more accessible.

  1. Corporate tax relief for MSMEs

To support small and medium enterprises, the Union Budget 2025 has reduced the corporate tax rate for MSMEs with an annual turnover of up to ₹500 crore from 25% to 22%.

Custom duties and basic customs duty (BCD) revisions

The budget has also focused on revising custom duties to support domestic industries and enhance competitiveness.

  1. Reduction in custom duties on key raw materials

To support sectors like automotive, construction, and electronics, duties on raw materials such as steel, aluminium, and chemicals have been reduced.

  1. BCD revisions for electronics and mobile phones

The Union Budget highlights a reduction in the BCD on mobile phone components from 15% to 5% to encourage domestic production and assembly.

  1. Custom duty exemptions for renewable energy equipment

To accelerate India's shift to clean energy, the Union Budget 2025 has removed custom duties on renewable energy equipment.

Transformative reforms in six key sectors

The Union Budget highlights reforms across six core sectors, laying the foundation for long-term growth.

  1. Power sector

  • Incentives for inter-state power transmission and distribution

  • Launch of a nuclear energy mission to develop 100 GW of nuclear power

  • R&D support for small modular reactors (SMRs)

  1. Mining sector

  • New policies to enhance domestic mining of critical minerals

  • Streamlining regulatory approvals for mining projects

  1. Urban development

  • Urban Challenge Fund with ₹1 lakh crore for city redevelopment

  • Jal Jeevan Mission extended till 2028 for 100% piped water supply

  1. Financial sector

  • Increase in FDI in insurance from 74% to 100%

  • Higher credit guarantees for MSMEs and startups

  1. Regulatory reforms

  • Simplified compliance for businesses

  • New tax bill for a streamlined tax system

  1. Taxation

  • Implementation of the new tax regime 2025 with reduced slabs

  • Extended tax holidays for startups

  • Increased capital gains tax exemptions, including tax on mutual funds investments

Sector-wise reforms and allocations

The budget has also introduced targeted reforms and allocations across agriculture, MSMEs, investment, and exports.

  1. Agriculture: Boosting rural economy

  • Dhan Dhanya Krishi Yojna increases Kisan Credit Card limits to ₹5 lakh

  • ₹1.5 lakh crore allocated for PM-KISAN

  • Krishi Vikas Yojana with ₹25,000 crore for cold storage and supply chain infrastructure

  1. MSMEs: Enhancing ease of doing business

  • Expanded Credit Guarantee Scheme for collateral-free loans up to ₹5 crore

  • Startup loans in 27 sectors with 1% guarantee fees

  • ₹10,000 crore fund of funds for startups

  1. Investment: Encouraging private and foreign capital

  • ₹1.5 lakh crore in interest-free loans to states

  • Promotion of global capability centres (GCCs) in tier-2 cities

  1. Exports: Strengthening global competitiveness

  • ₹25,000 crore allocated for the RoDTEP scheme

  • Incentives for footwear and leather industries, generating 22 lakh jobs

  • ₹20,000 crore allocated to the Maritime Development Fund

Impact on trading platforms and capital markets

The Union Budget 2025 also influences the financial markets and trading platforms in India.

  • The revised tax on mutual funds ensures better tax efficiency for investors.

  • There are chances that lower corporate tax rates boost business sentiment on stock exchanges.

  • Encouragement for retail and institutional investors through policy stability.

A progressive and inclusive budget

The Union Budget 2025 presents a balanced and forward-looking approach to economic growth. By simplifying the new tax regime, offering relief through revised income tax slabs, and supporting industries, this budget aims to drive long-term prosperity.

With an emphasis on agriculture, MSMEs, investment, and exports, India is on a path towards a robust economic future. Additionally, the focus on trading platform in India and financial market stability will ensure sustainable capital growth.

As India targets a GDP growth rate of 7.5% in FY26, this budget lays a strong foundation for inclusive economic progress, ensuring that its benefits reach every section of society.

FAQs

  1. What are the key income tax relief measures in the Union Budget 2025?

The budget exempts income tax for individuals earning up to ₹12 lakh annually under the new tax regime. Additionally, the standard deduction has increased to ₹75,000, and the home loan interest deduction under Section 24 has been raised to ₹3.5 lakh.

  1. Which goods have become cheaper due to customs duty changes?

The budget has waived customs duties on 36 life-saving drugs, raw materials for EV and mobile phone batteries, shipbuilding materials, and certain critical minerals.

  1. What is the projected economic growth rate for India in FY 2025-26?

The Economic Survey 2024-25 projects India's GDP growth to be between 6.3% and 6.8%, supported by strong fiscal discipline, private consumption, and external stability.