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Union Budget Simplified

February 5, 2025 by Team Instabizfilings

Union Budget Simplified

Imagine this: you earn ₹12 lakh a year. Under the old tax system, you would have been liable to pay income tax on that amount. But starting from FY26, you won’t have to pay any tax at all! The reason for this is that the tax-free limit for individuals has now been enhanced from ₹7 lakh to ₹12 lakh.

 

At this point, you could be thinking to yourself, “But the income tax slab has a 10% tax for income below ₹12 lakh. Why have I not paid anything?” That’s where a little magic trick called Section 87A rebate comes in. If your tax due is lesser or equal to ₹12 lakh, the government automatically gives you a giant tax deduction in your favor.

 

Let's see how this works. For example, your income is ₹12.75 lakh but your salary is subjected to a standard deduction of ₹75,000, meaning your taxable income is ₹12 lakh. In a normal scenario, your tax dues would be around ₹60,000. Thankfully, it is not, and thanks to the rebate, poof – your tax has converted to zero!

 

Let us assume you have also deducted ₹1 lakh on gross rent you receive for a property, resulting in a decline for your taxable income to ₹13 lakh. All of a sudden you are no longer eligible for the rebate, and your tax obligations start. The same can be said when your income is accumulated through capital gains in the stock market, or through the sale of real estate, where no rebate is applicable.

 

If you're still sticking with the old tax regime, there’s not much that changes for you, except for one small benefit: By investing in the NPS Vatsalya scheme (which allows minors to open an NPS account), you can now claim a ₹50,000 tax deduction—similar to regular NPS contributions.

 

A Small Win for Senior Citizens and Landlords

 

If you've heard your parents grumbling about tax deductions on their bank interest, here’s some good news:

Previously, if a senior citizen earned more than ₹50,000 in interest, banks would deduct TDS (Tax Deducted at Source). Now, this threshold has increased to ₹1 lakh, which means less hassle for them.

 

  • Landlords also get a break : TDS on rental income now kicks in only if earnings exceed ₹6 lakh (up from ₹2.4 lakh).

 

Boost for Manufacturing and Business

 

The government has also taken some smart steps to support Make in India.

 

  • Import duties have been eliminated on materials required for EV and mobile phone batteries.
  • Scrap from lithium-ion batteries, lead, and zinc will be duty-free, promoting local manufacturing.
  • Life-saving drugs for cancer and rare diseases are also exempt from customs duty, making them more accessible.

 

But How Will the Government Cover These Tax Cuts?

 

Here’s the big question : if the government is forgoing ₹1 lakh crore in direct taxes and ₹2,600 crore in indirect taxes, won’t that create a budget shortfall?

 

Surprisingly, no. Even with these cuts, the fiscal deficit is projected to decrease from 4.8% to 4.4% of GDP in FY26. How?

 

  • Increased Non-Tax Revenue : Public sector companies, banks, and the RBI are projected to contribute 10% more than in the past.
  • More Spending Power = More GST :  When individuals have additional disposable income due to lower taxes, they tend to spend more, which in turn enhances GST collection.
  • Corporate Taxes Remain Steady :  Unlike individuals, businesses are not receiving any tax breaks. In fact, corporate tax collections are expected to rise by 10%, reaching ₹10.8 lakh crore.
  • Gold and Silver Demand : The government has opted not to reduce the import duty on gold this time. With demand increasing and smuggling on the decline, tax revenue from precious metals could see a boost.

 

A Significant Shift in Nuclear Energy & Foreign Investment

 

Two significant developments have recently made headlines:

 

  • Foreign investors can now fully own insurance companies, as long as they reinvest all premium funds within India. This change is expected to attract more investment and improve insurance coverage.
  • There is a strong push for nuclear energy—currently, nuclear power contributes only 5% of India’s electricity. The government has allocated ₹20,000 crore to build small nuclear reactors, with five domestically produced reactors anticipated to be operational by 2033. The goal? To achieve 100 gigawatts of nuclear power by 2047, which will help decrease dependence on coal and stabilize the power grid.

 

The Overall Perspective

 

The Budget offers a mix of tax relief for individuals, incentives for manufacturing, and strategic initiatives designed to boost government revenue without raising tax rates. If everything goes as planned, this could result in increased disposable income, lower energy costs, and a stronger economy in the years ahead.And that’s the Budget—made easy to understand!

 

 

Disclaimer

 

The information provided in this blog is purely for general informational purposes only. While every effort has been made to ensure the accuracy, reliability and completeness of the content presented, we make no representations or warranties of any kind, express or implied, for the same. 

 

We expressly disclaim any and all liability for any loss, damage or injury arising from or in connection with the use of or reliance on this information. This includes, but is not limited to, any direct, indirect, incidental, consequential or punitive damage.


Further, we reserve the right to make changes to the content at any time without prior notice. For specific advice tailored to your situation, we request you to get in touch with us.


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