What Does The Budget Say About Direct Taxes?

The Union Budget 2025-26 has been recognised for its pragmatic, prudent and pro-growth stance. India’s journey through the Amrit Kaal will be defined by the way the budget is executed, funds disbursed and facilitation of powerful engines such as agriculture, MSME, investment and exports.

Buoyant Direct Tax Revenues Supporting The Fiscal Health Of The Economy

Over the past few years, direct taxes such as corporate and income tax have witnessed healthy collections. Though a dip was observed during the pandemic, the growth trajectory post-pandemic has been upwards. 

In FY 2020-21 corporate tax collection stood at Rs 4.6 lakh crore, while personal Income tax collection was at Rs 4.9 lakh crore. By FY 2023-24, these figures had nearly doubled, reaching Rs 9.8 lakh crore for and Rs 10.4 lakh crore, reflecting an expansion in tax base and revenue growth from direct taxes. The increase in direct tax collections also highlight the growing formalization of the economy.  

Corporate Taxes in Budget 2025-26 

Tax reforms in the new budget are focused on improving ease of doing business and increasing good governance in India. 

The budget has proposed to provide a presumptive taxation regime for non-residents who provide services to a resident company that is establishing or operating an electronics manufacturing facility. This will help boost electronic manufacturing facilities in India, leading to economic growth.

To promote inland water transportation industry in India, the budget has proposed to extend the benefits of existing tonnage tax scheme to inland vessels registered under the Indian Vessels Act, 2021. 

In order to promote the International Financial Services Centre (IFSC), the budget has proposed benefits to ship leasing units, insurance offices and treasury centers of global companies set in IFSC. This will help promote the development of financial infrastructure in India.

The budget has also proposed to provide certainty of taxation to Category I and category II AIFs that are undertaking investments in infrastructure and other such sectors. This provision will enable AIFs to take a long-term view on the infrastructure sector and promote nation growth. 

Personal Income Tax in Budget 2025-26

According to the proposed slab rates under the new tax regime, no income tax will be payable up to total income of Rs. 12 lakh. This limit will be Rs.12.75 lakh for salaried tax payers, due to standard deduction of Rs. 75,000.

The change in taxation structure will decrease the tax burden of individuals and increase disposable income. With more disposable income, higher savings and investments can be expected, which will lead to more economic growth. 

The budget has proposed to extend the time-limit to file updated income tax returns for any assessment year, from the current limit of 24 months, to 48 months along with applicable penalties. 

The budget has also proposed to provide exemption on withdrawal made by individuals from the NSS (National Savings Scheme). This will provide relief to individuals facing hardship due to non-payment of interest on the balances in the NSS. 

The budget gas proposed to amend the limits on the income of the employees for the purpose of calculating perquisites. This will also help reduce the tax burden of employees and allow them to better access medical treatment abroad without worry of taxation. This also considers the impact of inflation on standard of living and economic conditions of employees. 

These Direct Tax reforms are critical for the people and economy and provide a much needed relief to the middle class and opportunity for growth to businesses. Taking advantage of these reforms can help India achieve faster and better GDP growth, while building social welfare.