Key Proposals and Changes from India's Union Budget 2025

Union Finance Minister Nirmala Sitharaman unveiled the highly anticipated Budget 2025 on February 1, 2025. This budget marks a significant stride in India's economic journey, promoting inclusive growth designed to uplift vulnerable sections of society, including the underprivileged, youth, farmers, and women. It introduces robust reform measures across critical sectors such as taxation, infrastructure development, agriculture, and digitalization, all aimed at fostering enduring and sustainable national progress. The following provides a concise overview of the key proposals and important insights from Budget 2025.

Budget 2025 Document Access

Click on the link to download the Finance Bill 2025: Download here

Click on the link to download the Budget 2025 speech: Download here

1. Direct Tax Reforms

Introduction of a New Taxation Bill

A new Income Tax Bill is scheduled for introduction this week, aiming to replace the existing Income Tax Act of 1961. This proposed legislation seeks to streamline tax compliance and substantially reduce the complexity of current tax regulations by up to 60%.

Revisions in the New Tax Regime Structure

The revised tax structure under the new regime is detailed below:

Enhanced Rebate Under Section 87A

Under the new tax regime, the rebate available under Section 87A has been significantly increased from Rs. 25,000 to Rs. 60,000. This modification ensures that individuals earning up to Rs. 12,00,000 will now qualify for a full tax rebate, effectively resulting in no tax liability.

Rationalization of TDS/TCS Provisions

Budget 2025 proposes to rationalize Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions to alleviate compliance burdens, particularly for middle-income taxpayers. The government has increased the threshold limits across various TDS sections to simplify the tax process. The proposed amendments are as follows:

Note:

• Tax Collected at Source (TCS) will be eliminated for remittances made for educational purposes when financed through specified financial institution loans (refer to Section 80E).
• TCS on the acquisition of goods will be removed, effective April 1, 2025.
• Higher TDS rates will be applicable if taxpayers do not furnish their Permanent Account Number (PAN).

Extended Deadline for ITR-U Submission

The deadline for taxpayers to submit updated income tax returns (ITR-U) has been extended from 2 years to 4 years from the conclusion of the relevant assessment year. This extension aims to encourage voluntary tax compliance by providing more time for filing and correcting returns, thus ensuring a smooth and efficient taxation process. Additional tax must be paid when filing the ITR-U, as follows:

Exemption for NSS Account Withdrawals

Beginning August 29, 2024, withdrawals from National Savings Scheme (NSS) accounts will be exempt from tax. This tax relief is particularly advantageous for senior citizens.

NPS Vatsalya Accounts Eligible for 80CCD(1B) Benefits

Contributions made to NPS Vatsalya accounts will now qualify for the same tax benefits as general NPS contributions under Section 80CCD(1B). This allows for a Rs. 50,000 deduction under the old regime if investments are made in the NPS Vatsalya scheme.

Removal of Sections 206AB and 206CCA

Budget 2025 has omitted Sections 206AB and 206CCA. These sections previously mandated higher TDS and TCS rates—either twice the prescribed rate or 5%—for non-filers with an aggregate TDS/TCS of Rs. 50,000 or more. While intended to boost tax compliance, these provisions introduced considerable challenges for businesses and small taxpayers due to the difficulty in verifying return filings. Their removal, effective April 1, 2025, aims to simplify the tax process and reduce the compliance burden.

Startup Incorporation Deadline Extended

In Budget 2025, the deadline for incorporating eligible startups to access tax holiday benefits has been extended from 2025 to 2030.

Introduction of Section 44BBD

Section 44BBD is a new provision proposed for insertion into the Income Tax Act for Financial Year 2025-2026. This section introduces a presumptive taxation scheme specifically for non-residents who provide services or technology to Indian electronics manufacturing companies. Under this provision, 25% of the amounts paid or payable to non-residents, or received or receivable by them for providing such services or technology, will be considered as their gross receipts for tax purposes. The primary goal of this initiative is to foster growth in the Indian electronics sector by encouraging the inflow of advanced technology and expertise from international providers, thereby strengthening India's manufacturing ecosystem and promoting innovation.

ULIPs and Securities as Capital Assets

Unit-Linked Insurance Plans (ULIPs), which combine insurance with investment, were previously classified as capital assets only if their annual premium exceeded Rs. 2.5 lakh. It is now proposed that ULIPs will be treated as capital assets when the premium surpasses 10% of the policy's sum assured. Additionally, Section 2(14) is slated for amendment to clarify that securities held by investment funds under Section 115UB will also be considered capital assets.

Arm's Length Price Scheme for Global Transactions

The government has announced a new scheme to determine the arm's length price for international transactions over a three-year block period. This initiative aims to simplify transfer pricing regulations and offer an alternative to the standard annual examination process for such transactions.

Furthermore, the government plans to expand safe harbor rules to minimize litigation and enhance clarity in international taxation matters.

2. Indirect Tax Proposals

Customs Tariff Rationalization and Duty Inversion

• Seven additional tariff rates have been removed, building on the seven rates eliminated in the 2023-24 budget. This leaves only eight rates, including a ‘zero’ rate.
• Only one cess or surcharge will be applied per item, with the Social Welfare Surcharge exempted on 82 tariff lines that already have a cess.

Healthcare Support – Duty Exemptions on Medications

• Thirty-six life-saving drugs and medicines will receive full Basic Customs Duty (BCD) exemption. This measure aims to provide relief to patients, particularly those with cancer, rare diseases, and severe chronic conditions. Additionally, six life-saving medicines will be subject to a concessional 5% customs duty. Full exemption and concessional duty will also apply to bulk drugs used in manufacturing these medicines.
• BCD exemption will be granted for patient-assistance programs operated by pharmaceutical companies, provided the medicines are supplied to patients free of charge. Thirty-seven new medicines and 13 additional programs are slated for inclusion.

Boosting Domestic Production – Customs Proposals for Key Industries

• Critical Minerals: Full BCD exemption on 25 critical minerals not domestically available. This includes cobalt powder, lithium-ion battery scrap, lead, zinc, and 12 other crucial minerals, to support local manufacturing and job creation.
• Textiles: Full exemption on two more types of shuttle-less looms for technical textiles. The Revised BCD on knitted fabrics is now 20% or ₹115/kg, whichever is higher.
• Electronics: To correct inverted duty structures, BCD on Interactive Flat Panel Displays (IFPD) is increased from 10% to 20%, while it is reduced to 5% on open cell and other components. Open cell components for LCD/LED TVs will now be fully exempted from BCD to stimulate domestic production.
• Lithium-Ion Battery: BCD on 35 capital goods for EV battery manufacturing will be exempted, along with 28 additional capital goods for mobile phone battery manufacturing.
• Shipping: BCD exemption on raw materials, components, and consumables for shipbuilding is extended for another 10 years. The same benefit will apply to shipbreaking to boost competitiveness.
• Telecommunication: BCD will be reduced from 20% to 10% on carrier-grade ethernet switches, aligning it with the rate for non-carrier-grade ethernet switches.

Export Promotion Initiatives – Handicrafts, Leather, Marine, and MRO

• Handicrafts: Export time limit extended from 6 months to 1 year, with an optional 3-month further extension. Nine more duty-free inputs have been added to the list.
• Leather: Full BCD exemption on Wet Blue leather to enhance domestic production and employment. An export duty exemption of 20% on crust leather will support small tanners.
• Marine products: BCD on Frozen Fish Paste (Surimi) reduced from 30% to 5% to boost exports. BCD on fish hydrolysate decreased from 15% to 5% for shrimp and fish feed production.
• Railway MROs: The time limit for repairing foreign-origin railway goods extended from 6 months to 1 year, with an additional 1-year extension option (mirroring aircraft and ships).

Key Customs Reforms for Trade Facilitation

• New Time Limit for Provisional Assessment: A new two-year time limit (extendable by one year) will be introduced for finalizing provisional assessments.
• Voluntary Compliance Initiative: Importers and exporters will soon be able to voluntarily disclose material facts post-clearance and pay duty with interest, without incurring penalties. This provision will not apply if audit or investigation proceedings have already begun.
• Extended Time for End-Use Compliance: The time limit for utilizing imported inputs is extended from six months to one year. Additionally, quarterly reporting will replace monthly statements, reducing administrative burdens.

Amendments to Sections 107 and 112 of the CGST Act, 2017

• Section 107(6) is being amended to mandate a 10% pre-deposit of the penalty amount for appeals before the Appellate Authority, specifically in cases involving only a penalty demand without any tax demand.
• Section 112(8) is amended to mandate a 10% pre-deposit of the penalty amount for appeals before the Appellate Tribunal, also in cases involving only a penalty demand without any tax demand.

Insertion of New Section 122B in the CGST Act, 2017

A new Section 122B is being inserted to establish penalties for violations of provisions related to the Track and Trace Mechanism as outlined under Section 148A.

Amendments to Section 34 of the CGST Act, 2017

The Proviso to sub-section (2) has been amended to explicitly require the reversal of corresponding input tax credit (ITC) when a credit note is issued. This means if a supplier reduces their tax liability by issuing a credit note, the recipient must reverse any corresponding ITC already claimed.

Businesses will need to enhance their systems and processes to efficiently monitor credit note-related ITC reversals.

Amendments to Section 38 of the CGST Act, 2017

Section 38(1) is being amended to remove the term "autogenerated," implying that the ITC statement (GSTR-2B) may no longer be solely system-generated.

Businesses might now need to validate and reconcile invoices and ITC through an Invoice Management System (IMS) rather than relying exclusively on system-generated data.

Furthermore, a new clause (c) to Section 38(2) has been added, empowering the government to specify additional details in the ITC statement through rules.

3. Highlights Across Various Sectors

Agriculture

• National Mission on High-Yielding Seeds: A new National Mission on High-Yielding Seeds will be launched to promote research and commercial availability of over 100 climate-resilient and pest-resistant seed varieties developed since July 2024.
• Fostering Rural Prosperity: A comprehensive multi-sectoral program will be initiated in collaboration with states to address agricultural under-employment through investments, skill development, technology adoption, and revitalizing the rural economy. Phase I will target 100 developing agri-districts.
• Prime Minister Dhan-Dhaanya Krishi Yojana: This scheme will be launched in 100 low-productivity districts to boost agriculture, irrigation, and storage, benefiting 1.7 crore farmers.
• Comprehensive Program for Produce: A dedicated program for vegetables and fruits will be introduced in partnership with states to improve supply chain efficiency, processing, production, and ensure fair prices for farmers.
• Makhana Board: A Makhana Board will be established in Bihar to enhance the production, processing, value addition, and marketing of Makhana. Farmer Producer Organisations will categorize farmers and facilitate access to government benefits.
• Fisheries Sector Development: A new framework will support sustainable fisheries development within India’s Exclusive Economic Zone and High Seas, with a focus on the Andaman & Nicobar and Lakshadweep Islands.
• Urea Production Boost: To increase urea supply, a new plant with an annual capacity of 12.7 lakh metric tons will be established in Namrup, Assam. Additionally, three dormant urea plants have been reactivated to promote self-reliance in urea production.
• Kisan Credit Card (KCC) Limit Increase: The loan limit under the Modified Interest Subvention Scheme for Kisan Credit Cards (KCC) will be raised from Rs. 3 lakh to Rs. 5 lakh, supporting 7.7 crore farmers, fishermen, and dairy farmers.
• Cotton Productivity Mission: A new five-year ‘Mission for Cotton Productivity’ will be launched to enhance the productivity and sustainability of cotton farming, promoting extra-long staple cotton varieties.
• Self-Reliance in Pulses: A six-year 'Mission for Aatmanirbharta in Pulses' will be launched, focusing on Tur, Urad, and Masoor. Central agencies (NAFED and NCCF) will procure these pulses from registered farmers over the next four years.

MSMEs

• Revised MSME Classification: The classification limits for Micro, Small, and Medium Enterprises (MSMEs) have been revised and increased as follows:
  • Micro enterprises: Investment not exceeding Rs. 2.5 crore; turnover not exceeding Rs. 10 crore.
  • Small enterprises: Investment not exceeding Rs. 25 crore; turnover not exceeding Rs. 100 crore.
  • Medium enterprises: Investment not exceeding Rs. 125 crore; turnover not exceeding Rs. 500 crore.
• Enhanced Credit Accessibility: Credit availability has been significantly improved:
  • Credit guarantee cover for Micro and Small enterprises will increase from Rs. 5 crore to Rs. 10 crore, providing an additional Rs. 1.5 lakh crore in credit over the next five years.
  • Credit guarantee cover for startups will be enhanced from Rs. 10 crore to Rs. 20 crore, with the guarantee fee moderated to 1% for loans in 27 focus sectors under Atmanirbhar Bharat.
  • Credit guarantee is increased for term loans up to Rs. 20 crore for high-performing exporter MSMEs.
• Credit Cards for Micro Enterprises: Micro-enterprises registered on the Udyam portal will receive credit cards with a Rs. 5 lakh limit, with 10 lakh cards projected for issuance in the first year.
• New Fund of Funds: A new Fund of Funds will be established with an expanded scope and an initial contribution of Rs. 10,000 crore.
• Scheme for First-Time Entrepreneurs: A new scheme will be introduced to support 5 lakh women, Scheduled Castes, and Scheduled Tribes who are first-time entrepreneurs. This scheme will provide term loans up to Rs. 2 crore over the next five years and offer online capacity-building for managerial skills and entrepreneurship.
• Footwear and Leather Sector Scheme: A focused product scheme will be implemented to promote the production of high-quality non-leather footwear. This initiative aims to create 22 lakh jobs, generate Rs. 4 lakh crore in revenues, and achieve Rs. 1.1 lakh crore in exports.
• Toy Sector Scheme: A new scheme will position India as a global toy manufacturing hub, focusing on skill development, cluster formation, and creating a sustainable toy manufacturing ecosystem that promotes the 'Made in India' brand.
• Support for Food Processing: A National Institute of Food Technology, Entrepreneurship, and Management will be established in Bihar to boost food processing activities across the Eastern region.
• National Manufacturing Mission: This mission will cover small, medium, and large industries to support 'Make in India' by implementing roadmaps, providing policy support, and establishing a governance and monitoring framework for central ministries and states.
• Clean Tech Manufacturing Mission: A mission to support Clean Tech manufacturing will be established to enhance domestic value addition and build an ecosystem for EV batteries, solar PV cells, electrolyzers, motors and controllers, wind turbines, very high voltage transmission equipment, and grid-scale batteries.

Investments

Investment in Human Capital

• Saksham Anganwadi and Poshan: Saksham Anganwadi & Poshan 2.0 will aim to deliver improved nutrition to 8 crore children, 1 crore pregnant women, and 20 lakh adolescent girls.
• Atal Tinkering Labs: Fifty thousand Atal Tinkering Labs will be established in government schools over the next five years to foster curiosity and innovation.
• Broadband Connectivity: Broadband internet will be provided to all government secondary schools and rural primary health centers under the BharatNet project.
• Bharatiya Bhasha Pustak Scheme: This scheme will offer digital books for school and higher education in various Indian languages.
• National Centres of Excellence: Five National Centres of Excellence for Skilling will be launched with global partnerships, focusing on 'Make for India, Make for the World' manufacturing. A Rs. 500 crore AI Centre of Excellence will also be established, dedicated to education.
• IIT Capacity Expansion: IIT infrastructure will be expanded to add 6,500 seats in five IITs established after 2014, along with additional facilities at IIT Patna.
• Medical Education Expansion: Ten thousand medical seats will be added next year, with a goal of 75,000 seats over five years.
• Daycare Cancer Centres: Daycare Cancer Centres will be established in all district hospitals, with 200 centers planned for initiation in 2025-26.
• Scheme for Urban Workers: A new scheme will be launched for the socio-economic upliftment of urban workers, focusing on improving their incomes, sustainable livelihoods, and quality of life.
• Online Platform Workers Scheme: Identity cards, e-Shram registration, and PM Jan Arogya Yojana health coverage will be extended to online platform gig workers.
• PM SVANidhi Scheme Overhaul: The PM SVANidhi scheme will be revamped with increased loan limits, Rs. 30,000 UPI-linked credit cards, and enhanced capacity-building support.

Investment in Economy

• Public-Private Partnership (PPP) in Infrastructure: Infrastructure ministries will develop a three-year pipeline of projects under the PPP model.
• State Support: States are proposed to receive 50-year interest-free loans totaling Rs. 1.5 lakh crore for capital expenditure and incentives for reforms.
• Second Asset Monetization Plan: The Second Asset Monetization Plan (2025-30) aims to unlock Rs. 10 lakh crore for new projects.
• Jal Jeevan Mission Extension: The Jal Jeevan Mission will be extended until 2028 with an increased total outlay.
• Urban Challenge Fund: A Rs. 1 lakh crore Urban Challenge Fund will be established to implement proposals for ‘Creative Redevelopment of Cities,’ ‘Cities as Growth Hubs,’ and ‘Water and Sanitation’ announced in the previous Budget.
• Nuclear Energy Mission: Amendments will be made to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act. A Nuclear Energy Mission for research and development of Small Modular Reactors (SMR) will be set up with Rs. 20,000 crore, aiming for five indigenous SMRs to be operational by 2033.
• Maritime Development Fund: A Maritime Development Fund, with a size of Rs. 25,000 crore, will provide long-term finance for the sector. Up to 49% of the contribution will come from the government, with the remainder from the private sector and ports.
• Shipbuilding Financial Assistance Policy: The Shipbuilding Financial Assistance Policy will be revised to include Credit Notes for shipbreaking in Indian yards and changes in Shipbuilding Clusters. Large ships exceeding a specified size will be integrated into the infrastructure Harmonized Master List (HML).
• UDAN Scheme Modification: A modified UDAN Scheme will be launched to connect 120 new destinations, aiming to carry 4 crore additional passengers over 10 years. This will also support helipads and smaller airports in aspirational, hilly, and North East region districts.
• Greenfield Airports: Greenfield airports will be developed in Bihar, alongside the expansion of Patna airport and a brownfield airport at Bihta.
• Western Koshi Canal Project: The Western Koshi Canal ERM project will benefit 50,000 hectares of cultivated land in Bihar.
• Mining Sector Reforms: A policy will be introduced for the recovery of critical minerals from tailings.
• SWAMIH Fund 2: The SWAMIH (Special Window for Affordable and Mid-Income Housing) Fund 2, with a size of Rs. 15,000 crore, will accelerate the completion of 1 lakh pending dwelling units through contributions from banks, the government, and private investors.
• Tourism for Employment Growth: Fifty top tourist destinations will be developed in partnership with states through a challenge mode. Measures for employment-led growth include:
  • Organizing intensive skill-development programs for youth, including in Institutes of Hospitality Management.
  • Providing MUDRA loans for homestays.
  • Improving ease of connectivity and travel to tourist destinations.
  • Offering performance-linked incentives to states for effective destination management.
  • Introducing streamlined e-visa facilities and visa-fee waivers for specific tourist groups.
• FDI in Insurance Sector: The Foreign Direct Investment (FDI) limit in the insurance sector is increased from 74% to 100% for companies that invest their entire premium within India.
• Credit Enhancement by NaBFID: NaBFID will launch a 'Partial Credit Enhancement Facility' to support corporate bonds for infrastructure projects.
• KYC Simplification: A revamped Central KYC Registry will be introduced in 2025 for seamless KYC processing.
• Grameen Credit Score: Public Sector Banks will develop a ‘Grameen Credit Score’ framework to address the credit needs of Self-Help Group (SHG) members and individuals in rural areas.
• Pension Sector: A forum for the development and regulatory coordination of pension products will be established.
• Bilateral Investment Treaties (BITs): The existing BIT model of 2024 is being updated to align with a 'First Develop India' approach, promoting long-term foreign investment.
• Regulatory Reforms: A High-Level Committee for Regulatory Reforms will be formed to review regulations, certifications, licenses, and permissions in non-financial sectors.
• Jan Vishwas Bill 2.0: This bill will be introduced to decriminalize over 100 legal provisions.
• Investment Friendliness Index of States: An Investment Friendliness Index of States will be introduced in 2025 to foster competitive cooperative federalism.

Investment in Innovation

• R&D and Innovation Allocation: Rs. 20,000 crore has been allocated for private sector-led Research, Development, and Innovation, as announced in the previous Budget.
• Deep Tech Fund of Funds: The creation of a Deep Tech Fund of Funds will be explored to catalyze next-generation startups.
• PM Research Fellowship Scheme: Ten thousand fellowships will be provided over the next five years under the PM Research Fellowship scheme for technological research in IITs and IISc.
• National Geospatial Mission: A National Geospatial Mission will be launched to develop foundational geospatial data and infrastructure.
• Gyan Bharatam Mission: The Gyan Bharatam Mission will undertake the survey, documentation, and conservation of over 1 crore manuscripts.
• Gene Bank: A second Gene Bank, housing 10 lakh germplasm lines, will be established to ensure future food and nutritional security.

Exports

• Export Promotion Mission: An Export Promotion Mission will be established to facilitate easy access to cross-border factoring support and export credit, and to assist MSMEs in overcoming non-tariff barriers in international markets. This mission will be driven by sectoral and ministerial targets, jointly managed by the Ministries of MSME, Commerce, and Finance.
• BharatTradeNet (BTN) Platform: BharatTradeNet (BTN), a digital public infrastructure platform, will be launched to simplify documentation and financing in trade, complementing the Unified Logistics Interface Platform. This initiative will align with international standards.
• Global Supply Chain Integration: The government will identify key sectors for integration into global supply chains and develop domestic manufacturing capabilities. Facilitation groups, comprising senior officials and industry representatives, will support specific products and supply chains.
• National Framework for GCCs: A national guidance framework will be implemented to attract Global Capability Centres (GCCs) to tier-2 cities by enhancing talent and infrastructure.
• Warehousing Facilities: Infrastructure and warehousing for air cargo, particularly for high-value perishable horticulture products, will be modernized. Cargo screening and customs procedures will be streamlined to improve efficiency and user-friendliness.

How Budget 2025 Impacts Various Segments of Society

Salaried Middle Class

• Relaxed slab rates significantly reduce the tax burden on salaried middle-class income earners. Notably, a salary income of Rs. 12,75,000 can result in zero tax liability without any tax-saving deductions, achievable through the rebate.
• An additional tax slab has been introduced for income between Rs. 20,00,000 and Rs. 24,00,000, taxed at 25%. This new slab reduces the tax incidence for incomes in this range, as they were previously taxed at 30%.
• For interest income from banks, no TDS needs to be deducted if the income does not exceed Rs. 50,000. Previously, this limit was Rs. 40,000.
• Taxpayers who missed filing income tax returns for any of the previous four assessment years can now submit an updated return, thereby avoiding income tax notices and penalties. The previous limit was two assessment years.
• The benefits available under Section 80CCD(1B) for contributions to NPS schemes have been extended to NPS Vatsalya accounts. This allows contributions to this scheme on behalf of minor children, with deductions claimable on these contributions.

Business Income Earners

For businesses, this budget introduces several relaxations aimed at easing compliance and promoting growth:

• Sections 206AB and 206CCA, which mandated higher TDS/TCS rates for non-filers of income tax returns, have been abolished in Budget 2025. This means businesses no longer need to verify the return filing status of their vendors before deducting TDS.
• The deadline for startup incorporation to claim deductions under Section 80IAC has been extended until 2030. Eligible startups can now claim this deduction even if they commence operations up to 2030.
• Budget 2025 has relaxed the classification limits for MSMEs. Consequently, entities that previously exceeded investment and turnover thresholds and were ineligible for MSME status can now qualify for the advantages available to MSMEs under the new, expanded criteria.
• The credit guarantee cover for prescribed MSMEs has been increased, making credit more accessible to businesses. If a loan is secured through a credit guarantee cover, it eliminates the need for a third-party guarantee or collateral.
• Basic Customs Duty on various goods has been exempted or reduced to stimulate domestic manufacturing and encourage investments in priority sectors.

Senior Citizens

• Bank interest up to Rs. 1,00,000 per annum is now exempt from TDS deduction. This limit was previously Rs. 50,000.
• Withdrawals from National Savings Scheme (NSS) accounts will be exempt from tax starting August 29, 2024. This amendment primarily benefits senior citizens.

Budget 2025 Document Downloads