Budget 2025 Expectations: FM to present Budget on Feb 1- Taxpayers, experts call for higher deductions, lower tax outgo

Vishal Raheja, Managing Director, InvestoXpert, said, “Elevated borrowing costs, driven by persistent inflation, have significantly increased construction expenses throughout 2024. These challenges are further compounded by ongoing supply chain disruptions, exacerbated by escalating geopolitical tensions. As a result, construction costs are projected to rise even higher in the coming year. Amid this backdrop of surging costs and a noticeable slowdown in demand, the real estate sector’s expectations for Budget 2025 have reached unprecedented levels. Stakeholders across the industry are hoping for policy measures that address these challenges, such as incentives to curb rising input costs, streamlined processes to ease project delays, and initiatives to stimulate consumer demand. The sector anticipates interventions to foster growth, stabilize costs, and revive investor and buyer confidence as it navigates an increasingly complex economic landscape.”

Dharamveer Singh Chouhan, Co-founder and CEO of Zo World, said, “With the upcoming 2024 budget in sight, the hospitality industry is keenly anticipating measures that will drive growth and innovation. Key areas of focus include adjustments in GST rates to make hospitality services more affordable, incentives for adopting sustainable practices, and increased investment in infrastructure development to improve accessibility to tourist destinations. Additionally, we hope for enhanced support for startups, which are crucial for driving technological innovation in the sector. These measures will collectively boost the industry’s competitiveness and sustainability, fostering long-term growth. We are looking forward to working closely with the government on creating a standardized hostel operating license for the Indian travel segment, which will significantly accelerate the growth of the $80B travel industry in India.”

Shekhar Swarup, Joint Managing Director, Globus Spirits Limited, said, “As we approach the Union Budget, the retail sector is poised for transformative policies that could provide much-needed momentum. Key stakeholders are optimistic about potential reductions in interest rates, which would facilitate easier access to financing, thereby bolstering the retail business landscape. Within this sector, the food & beverage (F&B) retail segment is particularly hopeful for recognition as an essential service, seeking targeted subsidies and benefits for utilities and land costs. Moreover, a budget that offers tax relief to citizens could significantly boost disposable income, thereby enhancing their purchasing power. The retail industry also requires substantial support to navigate the ongoing premiumization trend, which is shaping consumer preferences towards higher-quality products. A robust financial framework in the upcoming budget could empower retailers to innovate, expand, and meet the evolving demands of a dynamic market.”

Ashish Modani, Senior Vice President & Group Head – Corporate Ratings, ICRA Limited, said, “The Union Budget 2025-2026 is expected to underscore the Government’s continued dedication towards the National Infrastructure Pipeline (NIP) with critical focus on PM Gati-Shakti National Master Plan and Jal Jeevan Mission (JJM), among others. ICRA expects the GoI’s capex to undershoot the FY2025RBE (Rs 11.1 trillion) by at least Rs 1.0 trillion, though it would still remain higher than the capex outlay in FY2024 PA.” Given the GoI’s continued thrust on infrastructure, ICRA projected the capital outlay to witness 10-12% YoY growth in FY2026 BE. It said that the Road and the Railway segments will continue to account for a bulk of the allocation. “The outlay towards JJM, urban infrastructure and affordable housing, however, is expected to witness healthy YoY growth in the upcoming budget,” he said.

India’s services PMI or HSBC India Services Business Activity Index for the month of December came in at 59.3. In November, the services PMI was at 58.4, down fractionally from 58.5 in October.

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India’s manufacturing activity dropped to a 12-month low of 56.4 for the month of December, data released by S&P Global showed. The headline figure was down from 56.5 in November.

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India’s manufacturing activity dropped to a 12-month low of 56.4 for the month of December, data released by S&P Global showed. The headline figure was down from 56.5 in November.

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India’s industrial output expanded at 5.2 per cent in November, primarily driven by a sharp uptick in manufacturing, data released by the government said. The manufacturing sector grew 5.8 per cent in November aided by a low base (1.3 per cent).

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According to data released by the Ministry of Statistics, the first advance real gross domestic product (GDP) growth estimate for FY25 has been maintained at 6.4 per cent. The estimate is lower than 8.2 per cent growth in FY24 and is marginally below the RBI projection of 6.6 per cent.

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India’s retail inflation for the month of December stood at 5.22 per cent, slightly lower than 5.48 per cent reported in November, data released by the Ministry of Statistics & Programme Implementation showed.

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India’s wholesale price index (WPI)-based inflation went up to 2.37 per cent for the month of December from 1.89 per cent in November 2024. This was primarily due to increase in prices of food articles, manufacture of food products, other manufacturing, manufacture of textiles and non-food articles, etc, data released by the Ministry of Commerce and Industry showed.

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As we are closing in on the Budget presentation date, experts urged the government to increase their capital expenditure growth while also ensuring domestic demand pick up and rise in investment rate.

Here are key policy recommendations.

Anil G Verma, Executive Director & Chief Executive Officer, Godrej Enterprises Group, said, “As we approach the Union Budget 2025-26, I am optimistic that the government will continue its focus on boosting infrastructure development, maintaining fiscal prudence, and laying emphasis on women, youth, farmers, and the underprivileged through skilling, welfare measures and financial assistance.

The important area that needs to be addressed now, amongst others, is the continued lower than expected growth in private consumption. Private consumption drives private investment and therefore I am hopeful that the GoI will take steps that boost consumption through a slew of measures that could include reviewing of personal income tax slabs and reassessment of the interest rates to provide EMI relief to the large masses whose purchases of assets such as homes and consumer durables are through loans.

The above will not only provide tailwinds to the consumer durables industry but also have a multiplier effect on the industries that serve them, through increased capacity utilization and hence also pave the way for private investments to flow in at a faster pace.”

Ankur Aggarwal, Managing Director, Crystal Crop Protection Limited, and Chairman Crop Life India, said, “As we approach the Union Budget 2025, we are optimistic about its potential to catalyze growth and transformation in India’s agriculture sector. Contributing over 15% to the GDP and employing more than 45% of the population, agriculture has grown at an average annual rate of 4.18% over the past five years. We anticipate focused allocations toward driving technology adoption, enhancing productivity, and strengthening storage and supply chain infrastructure. These measures would not only empower farmers, the true ‘annadatas,’ but also benefit agricultural machinery owners and OEMs.”

Dr Sameer Bhati, Director, Star Imaging and Path Lab Pvt Ltd, said, “As we approach Union Budget 2025-2026, the diagnostics sector has high hopes for financing healthcare and improving accessibility. Transformative diagnostics are fundamental to driving the agenda of health care. With 0.7% of its GDP spent on R&D (as compared to the global average of 2.2%), investments in research can bring in transformative technologies like AI-driven diagnostics and gene-based testing for precision and efficiency. Tax breaks and subsidies on diagnostic services can also make preventive healthcare affordable, as 48% of healthcare spending in India is currently out-of-pocket spending. Digital health is also very much in the mix — just the likes of telepathology and AI are creating accuracy and access. This level of performance in AI-driven diagnostics has demonstrated up to 95% accuracy in identifying certain conditions, which would greatly improve outcomes.”

Nilesh Shah, MD, Kotak Mahindra AMC, said, “The budget is coming as the world moves from globalisation to protectionism, and tariffs are becoming an important part of the policy. The budget needs to be growth-oriented, with support for urban consumption through tax cuts, a subvention for the EMI burden at the low and middle end of the pyramid, and incentives for private investment. The budget can’t afford to deviate from the path of fiscal prudence it has charted, as conservative management of the economy has differentiated us. Divestment, including strategic divestment of non-core PSUs, will help bridge the fiscal gap. The budget needs to invest in futuristic technology and provide ample resources for Indian entrepreneurs. Indians hold massive savings in Gold, mostly in the parallel economy. I request Honourable FM to think creatively about utilising these frozen savings to raise resources for futuristic investment. That step will truly bring ‘Sone Pe suhaga’.”

Sofiya Syed, Direct Tax Division, Dewan PN Chopra & Co, said, “As we approach the Union Budget 2025, capital gains tax rationalization is one of the key areas that everyone has been focusing on. Some of the key demands for the rationalization of capital gains tax include lowering tax rates on long-term capital gains, revising the thresholds for LTCG tax, enhancing indexation benefits, increasing threshold limits of deductions like 54, 54F, etc., and other similar measures. The government has often balanced between making changes to encourage investment and maintaining revenue targets. The FM is likely to weigh the potential revenue impact of any changes and whether it aligns with broader economic goals.”

Given the current economic priorities, such as boosting consumption, job creation, and handling fiscal deficits, Sofiya Syed said, tax rationalization could be linked with broader reforms. She added that the FM’s stance on capital gains tax rationalization will likely depend on a careful assessment of how much the government can afford in terms of tax cuts while still balancing its budgetary goals.

The upcoming 2025-26 Budget should aim to reduce the tax and compliance burden on salaried individuals and MSMEs to stimulate consumption and investment, said Rakesh Nangia, Founder and Managing Partner of Nangia & Co LLP. Simplifying Income Tax Return (ITR) forms, rationalizing capital gains tax, and revising Tax Deduction at Source (TDS) thresholds are key priorities.

For MSMEs, which handle 98% of manufacturing activities, a lower tax rate and concessional tax policies are crucial. Nangia urged raising the basic exemption limit for salaried individuals to Rs 10 lakh and increasing the standard deduction to enhance disposable income and boost spending.

Priyanka Duggal, Partner, Grant Thornton Bharat, said, “The FMCG sector faces significant challenges, including rising input costs for raw materials like palm oil, coffee, cocoa, and wheat. These pressures have led to price hikes (3%-5%) and “shrinkflation,” reducing product sizes to maintain affordability but risking consumer trust. Policy interventions are needed to stimulate demand and provide relief to manufacturers. With the upcoming Union Budget, the sector has emphasized the need for an enabling environment that fosters growth, sustainability, and innovation. A critical area of focus is rationalizing the tax and GST structure. Furthermore, businesses are rapidly adopting technology to boost efficiency and competitiveness. Direct tax incentives for AI, IoT, tech enablement investments, along with accelerated deductions and tax rebates, could accelerate modernization and strengthen digital infrastructure, driving innovation and growth.”

Natasha Tuli, Co-founder & CEO, Soulflower, said, “As a brand rooted in sustainability and clean beauty, we expect the upcoming budget to prioritize policies that support MSMEs and startups driving eco-friendly innovations. Tax benefits, incentives for adopting biodegradable packaging, and simplified compliance processes will help brands like ours scale and contribute to India‘s larger ESG goals. Additionally, increased focus on skill-based training programs for artisans and workers in the beauty and wellness industry will empower communities and enhance the quality of handmade, sustainable products. Measures to boost disposable incomes will encourage consumer spending on high-quality, conscious beauty products.”

Finance Minister Nirmala Sitharaman had, in the previous Budget, made big changes to the capital gains tax framework, offering both challenges and benefits for investors. Niranjan Govindekar, Partner, Corporate Tax, Tax & Regulatory Services, BDO India, said, “There are some provisions that need a relook. For instance, to streamline the capital gains tax structure by aligning tax rates/ period of holding across various sub-asset classes, for instance, treating international equities the same as domestic equities, debt funds the same as gold funds, and gold funds the same as gold ETFs. The hike in short-term rates from 15% to 20% and in long-term rates from 10% to 12.5% has raised investor tax liabilities significantly. Since now the LTCG tax on securities is on par with other assets, the Securities Transaction Tax (STT) should be abolished.”

He further said that Budget 2024 unexpectedly removed the indexation benefit for all long-term investments in debt funds. “Tax implications on the buyback of shares – under the amended provisions, entire consideration received is treated as dividends and taxed in the hands of the shareholders,” he said.

Kunal Mudra, CEO & Co-founder, Electrifi Mobility, said, “Ahead of the Union Budget 2025-26, we anticipate the government will continue its strong support for India‘s startup ecosystem, recognizing its pivotal role in driving the nation’s long-term growth. As a startup committed to advancing India’s green mobility transition, we expect focused measures that include enhanced financial support mechanisms and simplified regulatory frameworks to further empower the sector. In particular, we look forward to initiatives that will enable innovative companies to scale quickly, while ensuring that sustainable technologies become more accessible, affordable, and impactful for a wider audience. A more holistic and strategic approach is essential for the continued growth of India’s EV sector. The upcoming budget should prioritize creating a conducive ecosystem that not only supports the adoption of electric vehicles but also makes them a viable and accessible option for consumers.”

Alok Nigam, Managing Director, Brother International India Pvt Ltd, said, “The Union Budget 2025 arrives at a crucial time for India’s manufacturing sector, as the demand for advanced printing and office automation continues to grow at a CAGR of 6-8%. To build on this progress, I hope the government broadens the PLI scheme to include office automation and printing technologies. Rationalizing import duties on critical components can further accelerate innovation and support the ‘Make in India’ initiative. If the budget shows us the support, we expect a 25-30% growth in the consumer electronics segment. India’s MSMEs, contributing over 30% to the GDP, need greater access to digital infrastructure and automation technologies. Tax incentives, subsidies, and investments in Tier 2 and Tier 3 cities can ensure the widespread adoption of advanced solutions.”

Paresh Parekh, Partner and Retail Tax Leader, EY India, said, “The Union Budget 2025 is a ray of hope for India, particularly for the consumer and retail sector, which is a major driver of the country’s GDP and job creation. To promote employment generation, the Honorable Finance Minister announced incentive schemes tied to employment in the previous Budget, but these have not yet been implemented. There is an urgent need for the formal introduction of these employment-linked incentive schemes at the earliest. Additionally, measures such as the implementation of the National Retail Trade Policy, affordable financing for small retailers, enhanced support for digital infrastructure and e-commerce, and the expansion of the Production-Linked Incentive (PLI) scheme for the consumer goods industry will help boost India’s global competitiveness in sectors such as electronics, household appliances, food and beverages, textiles, and furniture.”

“Equally important is the rationalisation of tax laws and compliance requirements to promote consumption and ease doing business in India. Measures such as an increase in the basic exemption limit, a higher deduction cap under Section 80C, rationalisation of the short-term capital gains (STCG) tax rate, enabling a “cash pool structure within group companies,” GST rate rationalisation, and customs duty reforms would be welcome steps for retail and consumer corporate groups,” he added.

While Finance Minister Nirmala Sitharaman had, in the previous Budget, made notable announcements to capital gains tax, experts said that capital gains tax rationalisation is one of the key areas that the government needs to relook into. Some of the key demands include lowering tax rates on long-term capital gains, revising the thresholds for LTCG tax, enhancing indexation benefits, increasing threshold limits of deductions like 54, 54F, etc, and other similar measures.

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Vikram Marwaha, Joint Managing Director, DRRK Foods, said, “In the upcoming budget, we strongly urge the government to reduce corporate tax rates, which will provide financial flexibility to invest in advanced technologies, enhance production capabilities, and expand the market presence. Additionally, we hope the government will consider lowering personal income taxes or ensuring no additional burden on individuals. Increased disposable income in the hands of consumers plays a pivotal role in driving demand for quality products. A supportive tax structure not only boosts consumption but also encourages people to invest in healthier food choices, aligning with national health goals. A balanced budget that supports both corporate growth and consumer purchasing power will pave the way for sustained economic progress.”

On January 6, Finance Minister Nirmala Sitharaman finished her month-long consultations with industry and sector stakeholders that started on December 6, 2024. “The consultations started on December 6, 2024. In the course of the in-person consultations, more than 100 invitees across 9 stakeholder groups, including experts and representatives from farmer associations & agriculture economists; trade unions; education & health sector; MSME; trade & services; industry; economists; financial sector & capital markets; as well as, infrastructure, energy and urban sector, participated in the meetings,” the Finance Ministry said in a statement.

Kartik Narayan, CEO-Staffing, TeamLease Services, “In the forthcoming budget, we anticipate a decisive commitment towards formalizing India‘s vast informal workforce. This segment, which constitutes a significant portion of our economy, has long needed structured support and recognition. The expeditious enactment of comprehensive labour codes is essential to ensure fair wages and provide social security benefits, bringing stability and security to millions.”

Moreover, he added that the government must implement strategic measures to bridge the skills-jobs gap through targeted skill development programs, vocational training, and partnerships with industry stakeholders.

Ahead of the Budget 2025 presentation, the Finance Ministry announced a key reshuffle with senior IAS officer Arunish Chawla transferred from his role as Revenue Secretary to lead the Department of Investment and Public Asset Management (DIPAM). Further, Tuhin Kanta Pandey, currently the DIPAM secretary and finance secretary, will replace Chawla as the new revenue secretary.

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Finance Minister Nirmala Sitharaman is expected to present the Union Budget 2025 on the first day of February at 11:00 am, keeping up with the long-standing tradition. However, an official statement is still awaited. If and when confirmed, the announcement will take place on Saturday, February 1, an exception to the usual trading holidays for stock markets.