Big tax relief for middle class, push for agriculture, MSMEs: Takeaways of Union Budget 2025-2026

 Union Finance Minister Nirmala Sitharaman today (February 1) in Parliament tabled the Union Budget for the 2025-2026 Financial Year.

This was Sitharaman’s eight successive Budget – a record – and the first full Budget of the Prime Minister Narendra Modi 3.0 government.

Sitharaman made a slew of big announcements during the speech – none bigger than that there would be no tax on income up to Rs 12 lakh under the new regime.

“Together, we aim to unlock India’s potential under the visionary leadership of Prime Minister Modi,” Sitharaman said. “This budget is dedicated to accelerating growth, driven by our aspirations for a ‘Viksit Bharat.’ Our economy remains the fastest growing among all major economies. The Budget 2025-26 continues our government’s efforts to secure inclusive development, uplift household sentiment and enhance the power of India’s middle class,” she added.

But what are the biggest takeaways of the 2025-2026 Union Budget?

Let’s take a closer look:

Income Tax

This was the big one.

Many salaried and middle class people were hoping for some relief from Sitharaman via changes in the Income Tax slabs.

Sitharaman said the new income tax bill would be unveiled next week.

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As per Mint, Sitharaman said taxpayers under the new regime earning up to Rs 12 lakh would have to pay zero income tax.

This excludes the Rs 75,000 standard deduction.

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As per Moneycontrol, 80 per cent of India earns under Rs 12 lakh.

Sitharaman also announced revised tax slabs:

Income                         Tax Rate

Rs 0– Rs 4 lakh                  0%

Rs 4 – Rs 8 lakh                 5%

Rs 8 lakh – Rs 12 lakh      10%

Rs 12 lakh – Rs 16 lakh    15%

Rs 16 lakh – Rs 20 lakh    20%

Rs 20 lakh – Rs 24 lakh    25%

Above Rs 24 lakh            30%

She also raised the tax return filing limit from 2 years to four years.

The government has continued to make the new regime more attractive to taxpayers with Sitharaman’s announcement.

Already, over 70 per cent of taxpayers use the new tax regime, according to data from the Ministry of Finance.

This is likely to drive even more taxpayers to the new regime – and perhaps hasted an end to the old one.

Sitharaman also increased the tax deduction on interest for senior citizens to Rs 1 lakh.

She also increased the Tax Deducted at Source (TDS) on rent from Rs 2.4 lakh to Rs 6 lakh.

This means that those receiving rental income up to Rs 6 lakh will no longer have TDS.

“This will reduce the number of transactions subject to TDS, benefiting small taxpayers receiving smaller payments," Sitharaman was quoted as saying by News18.

Sitharaman also removed Tax Collected at Source (TCS) on remittances for education purposes – if it is funded through a loan taken from a specified financial institution.

Sitharaman also increased, the threshold for TCS on remittances under the RBI’s Liberalised Remittance Scheme (LRS) from Rs 7 lakh to Rs 10 lakh.

Tariffs and cess

As per Business Today, the government will remove seven tariff customs rates.

Only eight tariff rates will be kept after the Budget.

“The government propose removal of 7 tariff rates over and above those in removed in earlier budget. Only 8 tariff rates to remain after the new move,” Sitharaman was quoted as saying.

As per Mint, Sitharaman proposed doing away with Basic Customs Duty (BCD) on cobalt powder and lithium-ion battery waste, scrap, and 12 other crucial minerals.

She said six life-saving medicines will be added to a list with a concessional customs duty of five per cent.

She said she will extend BCD on wet blue leather.

Crust leather will also be exempted from 20 per cent duty.

Sitharaman said BCD will be brought down from 30 per cent to five per cent on frozen fish paste.

She also said BCD on fish hydrolycates will be lowered from 15 per cent to five per cent.

Sitharaman announced an increase of BCD on interactive flat panel displays to 20 per cent from 10 per cent.

However, she lowered the BCD on open cell and other components for LCDs and LEDs to five per cent.

The development comes in the backdrop of Donald Trump imposing new tariffs on Mexico, Canada and China from today.

Agriculture, MSMEs

As per The Hindu, Sitharaman announced the formation of the Pradhan Mantri Dhan Dhanya Krishi Yojana.

Sitharaman said the scheme is inspired by the Aspirational Districts Programme.

That programme, launched in 2018, aimed “to quickly and effectively transform 112 most under-developed districts across the country.”

She said the Pradhan Mantri Dhan Dhanya Krishi Yojana would merge existing schemes and will be carried out in partnership with states.

It would encompass 100 districts with low productivity, moderate crop intensity, and below-average parameters.

It is aimed at increasing agricultural productivity, adopting crop diversification and sustainable agricultural practices, increasing post-harvest storage at panchayat and block level, bettering irrigation facilities and making long- and short-term credit available to cultivators.

Sitharaman said the scheme would help 1.7 crore farmers.

As per Economic Times, Sitharaman said that Kisan Credit Cards would continue to support 7.7 crore farmers, fishermen and dairy farmers.

The limit for short-term loans would be increased from Rs 3 lakh to Rs 5 lakh.

As per Business Today, Sitharaman also announced the Mission for Pulses Self-Reliance for Tur, Urad and Masoor dals.

She said the six-year plan aimed at increasing productivity, producing climate-resilient seeds, and boosting farmer income.

She also announced the formation of a Makhana board and a National Institute of Food Technology, Entrepreneurship and Management in Bihar.

She also said a Rural Prosperity and Resilience Programme would be established.

“The Rural Prosperity and Resilience Programme will be launched in partnership with the states to address underemployment in agriculture through skilling, investment, technology, and revitalizing the rural economy," Sitharaman was quoted as saying by Economic Times.

“The program will focus on rural women, young farmers, rural youth, marginal and small farmers, and landless families.”

“Global and best domestic practices will be incorporated, and appropriate technical and financial assistance will be sought from multilateral development banks. In phase 1, 100 developing agri-districts will be covered.”

Experts hailed the KCC move.

Sandeep Chilana, Managing Partner at Chilana & Chilana Law Offices, told Moneycontrol the government’s move positioned MSMEs as the “second engine of growth.”

“The Budget pays specific attention to MSMEs by improving credit facilities, introducing specialised credit cards for SMEs and enhancing the threshold for qualification,” Chilana said.

“The key challenge will be ensuring smooth and quick loan access, especially for small and marginal farmers. The government must also implement safeguards to prevent over-borrowing and ensure that increased credit translates into real benefits rather than additional debt burdens,” he added.

“The move will ensure farmers are able to procure enough credit to increase productivity, which will give a boost to rural economic growth,” Vishal Sharma, Co-founder & CEO of AdvaRisk, an ICICI and NABARD-backed fintech startup, told Business Standard.

“We believe the KCC loan limit should be periodically revised in the coming years as well to account for rising inflation. We also need to focus on swift disbursal of these loans, where technology such as AI can be great enablers. Automating KCC loans increase efficiency and satiate the need of farmers on time, reducing the risk of crop failures due to lack of finance during sowing.”

Healthcare and education

According to Business Today, Sitharaman said three dozen lifesaving drugs would be fully exempted from customs duty.

Another six drugs would attract a duty of just five per cent.

She announced that 200 day care cancer centres would be established in district hospitals.

Ten thousand new seats in medical institutions by 2025-2026 would be established.

Sitharaman said the aim was to create 75,000 such seats by 2030.

She also said the Centre would set up 50,000 new Atal Tinkering Labs in government schools.

She said the government would provide broadband to all rural secondary schools and primary health centres.

Infrastructure and energy

Sitharaman said an Urban Challenge Fund would be created at a cost of Rs 1 lakh crore to help cities grow and to assist in their water, and sanitation.

She said a maritime development fund for shipbuilding and ports would be established at a cost of Rs 25,000 crore.

She also unveiled the UDAN Scheme Expansion which would connect  120 new regional destinations and serve four crore passengers.

Sitharaman announced Rs 15,000 crore would be allotted to the Swamih fund to complete construction of 1 lakh housing units.

She said another 40,000 units would be finished in FY 2026.

Ease of Doing Business and environment

Sitharaman announced a slew of reforms to help Ease of Doing Business (EODB).

As per Mint, Sitharaman said she would raise FDI in insurance for firms which invest entire premium in India from 74 to 100 per cent.

She also announced that a new central KYC registry would be established.

She vowed that the government would give quicker approvals for company mergers and expand the scope of related regulations.

She said the government would develop a “modern, people-friendly, and trust-based regulatory framework.”

She also said an Investment Friendliness Index for states would be established in 2025.

A committee would be set up under the Financial Stability and Development Council (FSDC) to chart the effect of financial regulations.

The idea behind this would be to increase the responsiveness and growth of the financial sector.

As per Business Today, Sitharaman announced a Clean Tech Manufacturing scheme.

She said firms would be provided incentives for EV batteries, solar PV cells, and wind turbines under this programme.

Tourism

Sitharaman announced a plan to boost tourism.

According to New Indian Express, Sitharaman said 50 top tourist destination sites would be developed in India.

This would be undertaken in partnership with states – which would provide land for key infrastructure. She said hotels in these spots would also be included in the development plan.

She said the Centre would give MUDRA loans for homestays and e-visas would be streamlined.

Special emphasis would be put destinations related to the life and times of Lord Buddha.

“Medical Tourism and Heal in India to be promoted in partnership with the private sector,” Sitharaman added.

“The push for promoting medical tourism under the ‘Heal in India’ initiative is a strategic move to elevate India’s position as a global healthcare destination. By easing the visa process and partnering with the private sector, India can attract more international patients, benefiting both our healthcare system and economy,” Raj Gore, CEO, Healthcare Global Enterprises Limited & Lead FICCI Cancer task force, told The Times of India.

With inputs from agencies