Union Budget FY2025-26 – Impact on Personal finance

The Union Budget presented by FM Smt. Nirmala Sitharaman has many positives on personal finances & following are key highlights.

Major Gain - Personal Income Tax:

Govt has revamped the personal income tax structure and this impacts every tax payer in the country. There is NO income tax payable till Rs.12.75 lakhs salary income. The revised tax slabs with rates are given below,

1. Unattractive Old Tax regime – Due to the proposed tax slabs & tax cuts, old tax regime becomes unattractive i.e If the person with Rs.50 lakhs to Rs.1 Cr income & has total deductions Rs.4.50 lakhs under various sections of IT Act, still he/she will end up paying more than Rs.1.50 lakhs range higher tax in old tax regime.
2. Genuinely Attractive New Tax regime  – As per budget proposals, new tax regime is genuinely attractive from FY2025-26 onwards. The expected tax savings for each income group has been given below. NOTE: The below calculations are not applicable for Capital gains.
3. If the total income except capital gains is up to Rs.12.75 lakhs, there is NO tax payable since Govt provides tax rebate u/s 87A. 
4. In case of two earning members in the family with Rs.12.75 lakhs income each, then there is no tax payable by the family for their total income of Rs.24.50 lakhs.
5. Example: If any senior citizen with Rs.1.82 Cr in fixed deposits, the total interest income per annum @ 7% rate will be Rs.12.75 lakhs and the same is going to be tax free from FY26.
6. If the annual income is between Rs.15 lakhs to Rs.20 lakhs per annum, the tax savings will be Rs.32000 to Rs.82000 i.e their tax outgo is reduced by 1/3^rd.
7. If income is Rs.24.75 lakhs to Rs.50 lakhs – The maximum tax savings will be Rs.1.14 lakhs. 
8. If total income except capital gains is in the range of Rs.50 lakhs to Rs.1 Cr, the tax savings will be Rs.1.25 lakhs.
9. In case of Rs.1 Cr to Rs.2 Cr, the tax savings will be Rs.1.31 lakhs.
10. In case of total income above Rs.2 Cr, the tax savings will be Rs.1.43 lakhs.
11. Govt has also announced about bringing new direct tax bill in this week with simpler understandable language & it may ease compliance requirements further.
12. Additionally, there are no changes in capital gain tax, surcharge, cess. The respective surcharge & cess are included in below table.

TDS & TCS rationalization:

The Proposed rationalization in TDS & TCS are to ease compliance burden.

1. The limit for TDS on interest for senior citizens is being increased Rs.1 lakhs,
2. The limit for TDS on rent is being increased from Rs.2.40 lakhs to Rs.6 lakhs & Similarly, TDS on dividends from equity shares is being raised to Rs.10,000 from Rs.5000/-
3. The limit for 5% TCS on foreign remittance under LRS is being increased to Rs.10 lakhs from Rs.7 lakhs. Also, Govt has also proposed to remove TCS on remittance for education through education loan.

Tax relief on a second house:

Earlier, Apart from one self-occupied house, the notional rent from second vacant house was added to income & taxed as per tax slabs. Now effective from 1^st April-2025, Govt has proposed to remove tax on notional rent & it is theoretically expected to increase investments in Real estate properties.

Economy, CapEx, PLI, fiscal deficit:

1. The budgeted estimates of GDP growth for FY26 will be 6.4% and it is lower than 8% GDP growth witnessed till previous FY24.
2. The allocation to Capital expenditure is Rs.11.2 trillion with 10% hike from FY25 budgeted spending of Rs.10.14 trillion. Along with grants-in-aid to states to the tune of Rs.4.3 Trillion, the allocation to CapEx is Rs.15.5 trillion for FY26. Basically, allocation to CapEx has increased 17% from previous fiscal & growth rate may be bit lower compared earlier witnessed 25%+ spike in capex allocation in previous 4 fiscals.
3. Allocation to Road & Railways remains flat. Allocation to Defense is being increased by 12%.
4. Allocation to PLI Schemes has increased from Rs.9300 Cr to Rs.17200 Cr with 85% hike. Based on budget allocation to various PLI schemes (production linked incentives), it appears that the quality of Govt spending has significantly improved since the PLI benefits are only for those industries who delivers on production / manufacturing. (Example: Electronics manufacturing industry has genuinely delivered on their promises till now and subsequently, Govt has increased budget allocation to this industry under PLI scheme from Rs.5777 Cr to Rs.9000 Cr with 55% spike).
5. The fiscal deficit for FY25 is 4.8% of GDP & 4.4% of GDP for FY26. Govt has consistently beaten its own targets. This fiscal prudence brings much needed macro stability to the country.

Sinhasi View on Budget:

1. Budget is fiscally prudent - fiscal deficit will be 4.4% of GDP for FY26 & Govt has also set a roadmap to reduce “Central Govt debt to GDP to 50% of GDP from current levels of 57% of GDP. In long term, it depicts about relatively lesser supply of G-Sec, declining path of bond yields, falling interest rates and the same is positive for equities.
2. Continues Capital Expenditure – If we consider allocation to CapEx of Rs.15.5 trillion including grants-in-aid to States, it depicts encouraging picture about continuation of investment led growth with Govt spends 4.3% of GDP to CapEx Vs 4.1% of GDP in FY25 as well as 4.2% of GDP on FY24 & however, quality of CapEx spends at state level is matters a lot.
3. Boosts consumption via tax cut – Govt has given up its tax revenue up to Rs.1 trillion via tax cuts and the same is expected to boost both consumption as well as savings / investments. Consumption was lagging for past few years and Govt has addressed the same now but this Rs.1 trillion tax cut is only 0.3% of GDP and we can expect bit more GDP growth via subsequent chain of consumption activity occurs in economy. Similarly, savings pie may move to equities rather than insurance policies & People also have the choice to reduce their debt like home loan, personal loan etc via pre-paying the same. Overall, this tax cut is good on every aspect.
4. Balancing Growth via CapEx, Tax cuts, Fiscal prudence– When Govt is able to give up its revenue to the tune of Rs.1 trillion, it has managed it via “flattish allocation to subsidies (no hike in subsidy bill), expected higher revenue in STT (securities transaction tax), continuous solid dividends from RBI, continuous business performance of PSU & their dividend payouts, expected growth tax compliance which may result in 14% growth of income tax collection etc”. Overall, Govt has done smarter balancing of its finances & they are basically giving away tax cuts only from expected growth in income tax collection.
5. Behavioral change from moving out of “tax savings debt investments to growth oriented equity investments” – Since Govt has fully discouraged old tax regime, there is going to be a generational shift in investor’s behavior to move out completely from “debt oriented tax savings investment avenues to progressive growth oriented equity investment habits” & this will be the major highlight of this budget. As a country, our people’s personal capital allocation was significantly less towards progressive growth oriented equity & it was more towards “tax savings enabled debt instruments, insurance policies, etc” & this budget has brought much needed change in our own behavior towards our own capital.