Budget 2025 Expectations: Will FM Sitharaman tweak income tax slab, boost consumption? A look at key expectations from Budget

India’s commitment to AI was witnessed by the allocation of Rs 10,300 crore for the India AI Mission in March 2024. With AI projected to contribute $15.7 trillion to the global economy by 2030, a spokesperson from Tech Entrepreneurs Association of Mumbai (TEAM) said, “The upcoming Union Budget 2025-26 must prioritize key areas to maximize Maharashtra’s potential. We believe this budget should focus on four pillars: first, bolstering R&D to drive innovation; second, providing financial support to empower startups and emerging businesses; third, advancing training and skill development to create a future-ready workforce; and fourth, enhancing digital infrastructure, including focused tech parks in strategic locations to attract and retain talent, while ensuring data privacy and extending digital outreach to Tier 2 and 3 cities for inclusive growth.”

The Ministry of Agriculture has projected a record-breaking Kharif food grain production of 1647.05 LMT for 2024-25—a remarkable increase from the previous year. This achievement owes much to the unwavering support of the Indian agrochemical industry. However, industry leaders said that the challenges persist and to sustain the momentum and bolster India’s leadership in the agriculture and agrochemical sector, we need robust government policies.

Vimal Kumar, Managing Director, Best Agrolife Ltd, said, “The 18% GST on agrochemicals makes quality crop protection expensive for farmers. Reducing it to 5% would make these products more accessible, boosting productivity and profitability. Additionally, India’s reliance on imports highlights the need for Production-Linked Incentive (PLI) benefits to encourage local manufacturing. The increasing pest resistance demands innovative solutions but at the same time the rising raw material costs are a major challenge for industry.”

To support this, he added, the government could reintroduce the 200% income tax deduction on investments in R&D and registration studies. The government can also promote public-private partnerships to develop new crop protection molecules in India. These partnerships can help share the high discovery costs and boost domestic innovation.

Refining indirect tax regulations is crucial to easing compliance costs for businesses and Budget 2025 is expected to announce measures on this front. Since the introduction of GST in 2017, India has seen significant improvements in tax administration, reflected in soaring tax revenues. However, the system still faces challenges that need the attention of the finance minister in the Union Budget. Kulraj Ashpnani, Partner, Dhruva Advisors, said, “Simplifying GST rates by consolidating the tax brackets and establishing a unified authority to handle cross-jurisdictional issues would reduce inefficiencies and ease the compliance burden. Additionally, making the GST Appellate Tribunal operational and ensuring timely processing of refund claims would significantly improve the tax experience for businesses. Expanding the input tax credit to cover more expenses would provide further relief and incentivize growth.” He further added that Budget 2025 presents an opportunity to create a tax system that is simpler, more efficient, and conducive to business growth.

With the expected fiscal deficit at 4.90% in 2024-25 and the government's aim to reduce it to 4.50% of GDP in 2025-26, experts said that there is limited scope for the finance minister to increase the basic exemption limit or reduce the higher tax rate or surcharge currently levied. However, Gopal Bohra, Partner, Direct Tax, NA Shah Associates, said, “The FM may consider increasing the standard deduction to Rs 1,00,000 and the deduction for interest on housing loans to Rs 3,00,000. This move could provide savings for individual taxpayers and stimulate consumption in the economy.”

India’s manufacturing activity was at a 12-month low in December, with the Purchasing Managers’ Index (PMI) for the month dropping to 56.4, S&P Global said. This was down from 56.5 in November, but remained above its long-run average of 54.1.

India’s wholesale price index (WPI)-based inflation escalated to 2.37 per cent in December from 1.89 per cent in November 2024. This was due to increase in prices of food articles, manufacture of food products, other manufacturing, manufacture of textiles and non-food articles, etc.

Under the new tax regime, income tax has become simpler. Further, an exemption of Rs 7 lakh means that taxpayers have to pay NIL tax on the same level of income where they were earlier paying tax. Hence, Vivek Jalan, Partner, Tax Connect Advisory Services LLP, said, the Government should consider and make the new regime as the only regime as the Income Tax Act goes for a comprehensive review on 1st Feb 2025. He further added that they must also consider easing out the tax rate in the new regime considering the cost of inflation of approx. 6 per cent pa and the impact on the present value of money.

“It is thus expected that the basic exemption/ rebate be extended to Rs 9 lakh for putting in more money in the hands of the middle class. Further, for the established taxpayers with an income of over Rs 15 lakh, transition to the new scheme would involve a financial hit. It is expected that the Government would also compensate them. Hence there may be a new slab in the new regime of say Rs 15 lakh - Rs 18 lakh with a tax rate of 25 per cent,” he said, while adding that this would mean more disposable income in the hands of people and a push to consumption which would consequently push the GDP of the country.

Parliamentary Affairs Minister Kiren Rijiju, in a post on X (formerly, Twitter), said that Parliament’s Budget Session will be held from January 31 to April 4, with Finance Minister Nirmala Sitharaman set to table her eighth straight budget on February 1. He further added that President Droupadi Murmu has approved summoning both Houses of Parliament for the Budget Session 2025 from 31 January to April 4. President Murmu will address the joint sitting of both Houses on January 31 at 11 am.