The new tax slabs announced by the Finance Minister in the Budget will substantially reduce the taxes of the middle-class, boosting household consumption, savings and investment
The NDA 3.0 has finally heard the angry voices of the middle-class, considered the traditional support base of the saffron party, and sought to assuage them by providing big tax relief in the central Budget. Presenting her eighth consecutive Budget in Parliament, Finance Minister Nirmala Sitharaman announced substantial tax relief to put more money in the pockets of the salaried class. There will be no tax for annual income up to Rs 12 lakh. Effectively, this will go up to Rs 12.75 lakh due to a standard deduction of Rs. 75,000. The slabs and rates are also being changed across the board to benefit all taxpayers. The new structure will substantially reduce the taxes of the middle-class, boosting household consumption, savings and investment. In the last ten years, there has been a growing perception that the government’s policies were benefiting only a few corporate entities close to the ruling establishment while India’s middle-class has been bearing the brunt of the economic slowdown. Reeling from high inflation, low wage growth not sufficient to cover the price rise, high taxation and meagre household savings, the taxpayer was feeling cheated. The fact that personal income tax collections had exceeded corporate tax collections had also added to the frustration. The tax bonanza comes against the backdrop of recent slump in economic growth and depressed consumer demand amid high inflation. India’s economic growth slowed to 5.4% in the July-September quarter, a seven-quarter low, raising widespread concerns.
Private consumption expenditure moderated to 6% in the second quarter, down from 7.4% in the first quarter. This reflected weaker demand, particularly in urban areas, where households have been squeezed by elevated borrowing costs and high inflation. Amid consumer businesses seeing a lacklustre demand in the recent past, the clamour for relief to the middle class was high before the Budget. The government must have realised that despite giving a tax break to the corporate sector in 2019, private investment as a percentage of the GDP had been quite sluggish. The private sector has long blamed low demand for their dull approach towards new investments. Another major takeaway is that political considerations guided budgetary priorities. This was reflected in the liberal gifts showered on the poll-bound Bihar where NDA is in power. From new greenfield airports to new institutes, Bihar, going to polls later this year, found special mention in the Budget speech. Among the announcements for the State were the establishment of the National Institute of Food Technology and Makhana Board, the building of greenfield airports and financial support for the Western Kosi canal. Overall, the Budget 2025 laid out a roadmap for economic resilience, focused on tax relief, infrastructure expansion, and sectoral reforms. Apart from significant income tax cuts under the new tax regime, higher exemptions, and fresh incentives for start-ups and MSMEs were announced to boost both middle-class incomes and drive long-term sustainable growth.
