A pragmatic balance of consumption and fiscal discipline

Budget 2025 has moved in a path that at once caters to the immediate requirements of the economy, while continuing on the path to investing for future growth, even while ensuring a tight leash on the fiscal deficit.

Tax slab rationalisation to boost consumption, ease of taxation via higher thresholds for tax deductions (TDS and TCS), tax clarity on ULIP investments, and tax-free withdrawals from NSS investments give the middle class much to cheer about.

At the other end of the spectrum, continuing spends on infrastructure via steady capex outlay, lower-than-expected fiscal deficit, and a nearly unchanged market borrowing programme ensure that the macros are in healthy shape, eventually translating to lower borrowing costs for the government.

The budget projection for a 6.3-6.8% GDP growth in FY26 would place India among the fastest growing large economies in the world.

Considerable tax relief

There has been a continuous clamour over the past few quarters on the squeeze that the middle class is witnessing due to stagnant salaries and a rather heavy tax burden. This has resulted in consumption nosediving, so much so that many corporates raised concerns on slowing demand.

As a remedy to this slowdown, the budget has come with a bunch of goodies on the tax front to give more disposable income to the middle class and to kickstart the consumption story.

Salaried income up to ₹12.75 lakh will become tax free with new rebates in place, up ₹5 lakh from the current levels. The standard deduction amount of ₹75,000 is included in the above calculation. And the 30% tax slab kicks in only from incomes of ₹24 lakh or more, up from ₹15 lakh currently.

There is a potential of ₹1.1 lakh to be saved by a person in the new tax regime compared to her current tax burden if her taxable income is ₹24 lakh annually.

Tax slabs have also been liberalised in the new tax regime with taxable income starting at ₹4 lakh and tax rates beginning at 5%. While the tax slabs are increased in blocks of ₹4 lakh, the tax slabs are raised in calibrated steps of 5% each.

In all, this is a ₹1 trillion push to restart stagnant consumption by putting considerably more money in the hands of the middle class.

Liberalised deductions

A key demand from many depositors and more so from senior citizens was reducing the hassle around TDS (tax deducted at source) on interest income. The budget has doubled the threshold for TDS on interest income from ₹50,000 to ₹1 lakh in the case of senior citizens, which would considerably improve their cashflows and liquidity. For others, the threshold has been increased by ₹10,000 to ₹50,000.

Income from dividends would also be taxed only if the amount is ₹10,000, double the current levels.

Another key move is that the threshold for TCS (tax collected at source)—in the case of overseas remittances for your child’s college fees when done via education loans—has been increased from ₹7 lakh to ₹10 lakh. The rate would continue to be 0.5%.

Clarity has emerged on taxation of ULIP (unit-linked insurance plan) gains. Gains on premium payments in excess of ₹2.5 lakh would be treated as capital gains and taxed at 12.5% beyond one year.

Fiscal discipline

While the giveaways have been substantial, the budget has continued to maintain a healthy national balance sheet. The borrowing programme has been maintained at ₹11.54 trillion and the fiscal deficit is lower than the projected 4.5% and is likely to be only 4.4% for FY26.

The capex programme for the country is maintained at ₹11.22 trillion and continues to be robust.

Many other announcements related to the agricultural sector, start-ups, MSMEs (micro, small and medium enterprises) and women entrepreneurs are all welcome and may help boost rural demand.

Overall, a delicate balance has been achieved via smart allocation of resources.

Radhika Gupta is the MD & CEO at Edelweiss Asset Management Ltd. Views expressed are her own.