Budget 2025-26: Major Tax Relief for the Middle Class & Growth Agenda

The article is written by Dipendra Jain (Partner) at Jain Doshi & Co.

The Union Budget 2025-26 has introduced substantial tax relief for the middle class while laying down an ambitious roadmap for economic growth. The revised income tax slabs, incentives for micro, small, and medium enterprises (MSMEs) and startups, along with significant infrastructure investments, aim to create more economic opportunities, generate employment, and simplify tax compliance. This article provides a comprehensive analysis of the key highlights and their implications.

Major Tax Relief Measures

A key highlight of the budget is the revision of income tax slabs under the new tax regime. The government has reduced the tax burden across income groups, ensuring that individuals and families have more disposable income.

Revised Income Tax Slabs (New Regime)

The increase in the tax-free income limit from ₹3 lakh to ₹4 lakh provides direct financial benefits to taxpayers. Additionally, the lower tax rates ensure that individuals retain a greater portion of their earnings. Senior citizens will benefit from a higher tax deduction on interest income, which has been doubled to ₹1 lakh.

To ease housing affordability, the budget has also raised the tax deduction at source (TDS) threshold on rent from ₹2.4 lakh to ₹6 lakh. Furthermore, taxpayers can now claim tax exemption on two self-occupied properties instead of one. Another major reform is the extension of the time limit for filing updated income tax returns (ITR) from two years to four years, allowing for greater compliance flexibility.

Under the new tax regime, an individual earning ₹18 lakh per year will save ₹70,000 in taxes, while those earning ₹12 lakh annually will benefit from a tax saving of ₹80,000.

Simplification of TDS and TCS Provisions

The budget introduces a streamlined approach to tax deduction at source (TDS) and tax collection at source (TCS) provisions to improve compliance and ease taxpayer burdens. The key changes include:

• Rationalization of TDS by reducing the number of rates and thresholds for better clarity.
• The TCS threshold for remittances under the Reserve Bank of India’s (RBI) Liberalized Remittance Scheme (LRS) has been increased from ₹7 lakh to ₹10 lakh.
• TCS on education-related remittances funded through specified loans has been removed.
• The TCS requirement on certain transactions related to the sale of goods has been omitted to ease compliance.
• The relaxation provided for delayed TDS payments has now been extended to TCS provisions, reducing penalties for delayed compliance.

Encouraging MSMEs and Startups

MSMEs and startups are key contributors to economic growth and job creation. The budget has introduced several measures to support and encourage these sectors:

• A ₹2 crore loan scheme for first-time entrepreneurs, with special provisions for women and Scheduled Caste/Scheduled Tribe (SC/ST) entrepreneurs.
• An increase in the MSME credit guarantee cover to ₹10 crore for micro and small enterprises and ₹20 crore for startups.
• Industry-specific incentives in sectors such as toy manufacturing, leather production, food processing, and exports.

To further support MSMEs, the investment and turnover limits have been raised by 2.5 times and 2 times, respectively. This expansion is expected to fuel growth, innovation, and employment generation.

Infrastructure and Economic Development

The government has allocated significant funds for infrastructure development, which is expected to boost economic activity and create employment. Some of the major allocations include:

• ₹1.5 lakh crore in interest-free loans to states for capital projects, ensuring balanced regional development.
• ₹1 lakh crore under the Urban Challenge Fund to modernize cities, improve infrastructure, and create better employment opportunities.
• The extension of the Jal Jeevan Mission to 2028, ensuring 100 percent clean water supply across India.
• An increase in the foreign direct investment (FDI) cap in the insurance sector to 100 percent, promoting competition and improving service delivery.

Investment and Market Reforms

The budget introduces several initiatives aimed at strengthening investment opportunities and market stability. Key reforms include:

• No change in the long-term capital gains (LTCG) tax structure, providing relief to investors and ensuring market stability.
• The launch of ‘BharatTradeNet,’ a new digital platform to streamline export financing and trade facilitation.
• The establishment of a ₹20,000 crore research and development (R&D) fund to promote private-sector innovation and position the Indian economy for future growth.

Fiscal Policy and Regulatory Reforms

• The fiscal deficit target for FY 2025-26 has been set at 4.4 percent of GDP, indicating a commitment to fiscal consolidation.
• A new scheme has been introduced for determining the Arm’s Length Price (ALP) for international transactions over a block period of three years, reducing the burden of frequent tax assessments on multinational corporations.
• The registration period for small charitable trusts and institutions has been extended from five years to ten years, facilitating long-term planning and compliance.

Conclusion

The Budget 2025-26 presents a balanced approach, offering tax relief to individuals, enhancing investment in infrastructure, and simplifying regulatory compliance. By focusing on tax cuts, MSME growth, market stability, and capital investment, the government aims to bolster economic resilience and drive sustainable growth. The reforms introduced will have a far-reaching impact, ensuring that India continues its trajectory of economic expansion while maintaining fiscal discipline. The emphasis on tax relief and infrastructure spending is expected to increase disposable income, encourage business growth, and improve the overall economic climate.

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Dipendra Jain

Dipendra Jain is a distinguished professional with extensive expertise in taxation matters and portfolio management services. A fellow member of the Institute of Chartered Accountants of India (ICAI). In addition to his proficiency in taxation, Dipendra Jain provides comprehensive corporate legal advisory services, including company incorporation, MSME Udyam registration, and regulatory compliance. He is also adept at contract drafting, offering meticulously crafted agreements tailored to meet the unique needs of his clients. His versatile skill set and client-centric approach make him a trusted advisor for individuals and organizations seeking expert guidance in financial, corporate, and legal matters.

For any query contact- dkjainca2000@gmail.com