Union Budget 2025 Sets the Course Towards Viksit Bharat

The National Democratic Alliance (NDA) government presented the second full Union Budget of its third term today, outlining the roadmap for Viksit Bharat — an ambitious mission to transform India into a developed nation by 2047, the centenary year of our independence.

Overall, this is a welcome budget for the middle class and senior citizens owing to the new tax regime slabs. It provides the much-needed relief of no income tax up to INR 12.75 lakh and rationalises income tax slabs under the new tax regime, considering the increasing living costs and pressures of inflation. The new income tax slab will increase disposable income, leading to higher spending and economic growth. This makes it a well-balanced and progressive budget.

The government has also focused on reducing the compliance burden for taxpayers, including non-residents. With a focus on simplification and modernisation, the Finance Minister has also announced the introduction of a new Income Tax Bill next week, essential for India to become a USD 5tn economy.

For start-ups, a new Fund of Funds will be set up to power entrepreneurship with a fresh contribution of another INR 10,000 crore in addition to the existing contribution of INR 10,000 crore. The presumptive taxation scheme is extended to non-residents providing services for electronics manufacturing facilities.

Furthermore, the government has once again demonstrated its intent to focus on its initiatives of ‘Make in India’ and ‘Atmanirbhar Bharat.’ Changes proposed across indirect taxes primarily focus on providing impetus to domestic manufacturing and simplifying certain procedures. At a policy level, the government would be setting up the National Manufacturing Mission to further the mission of ‘Make in India.’ It would focus on helping MSMEs tackle non-trade barriers in international trade, upskilling workers, and enhancing manufacturing capabilities in India. For several industries where raw materials are imported, customs duty rates have been reduced to encourage domestic
manufacturing capacity building and value addition. This has been done across several sectors, such as drugs, textiles, electronics, EVs, and leather, amongst others.

From an ‘Ease of Doing Business’ perspective, the government has introduced new provisions laying down the timelines for the finalisation of provisional assessment of the key import document, i.e., ‘Bill of Entry,’ to reduce tax uncertainties. Additionally, the government has also proposed to introduce provisions for voluntary compliance by allowing importers to declare material facts related to imported goods if missed at the time of import. This option allows payment of duty along with interest without any levy of penalty, subject to litigation not being initiated by authorities. This reflects the government’s intent to rely more on the self-assessment mechanism for imports and support the businesses by bringing in a definitive framework.

The government has also focussed on simplifying certain aspects, such as exemption from the levy of Social Welfare Surcharge where any other cess is already levied. The basic premise is to ensure that only one cess/ surcharge should be levied on the import of any product, which would help in better managing the import of inputs for promoting domestic manufacturing. Also, in line with expectations, the amendments proposed by the GST Council have now been formalised through the Finance Bill, where the changes also include debatable aspects relating to input tax credit for plant and machinery.

The rationalisation of TDS provisions was much needed. The budget proposes to rationalise the TDS provisions by increasing the threshold limit for its applicability to enhance the ease of doing business in India. Further, to reduce compliance burden, the provisions for deducting/ collecting tax at a higher rate where the deductee is a non-filer of the income tax return are proposed to be omitted. To reduce the compliance burden for the smaller trusts or institutions, the period of validity of registration is proposed to be increased from five years to ten years.

To reduce repetitive arm’s length price (ALP) computations for similar transactions, it is proposed to carry out TP assessments in a block, wherein the ALP determined about a transaction for one year will apply to similar transactions for the two subsequent years, thereby easing compliance burdens for taxpayers and administrative burden on the TPOs. While the Finance Minister, in the Budget Speech, specifically mentioned expanding the scope of safe harbour rules, the proposals are yet to be announced.

Considering global uncertainties, anticipated tariff wars, and the need to enhance domestic capabilities, these Union Budget 2025 proposals reflect the government’s intent to actively support the growth of the Indian economy.

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