Govt remains steadfast in its belief that a taxpayer-friendly regime will ultimately drive long-term compliance and economic prosperity.

India has seen remarkable growth in the past decade, positioning itself as one of the fastest-growing economies in the world. And Modi 3.0 has marched forward in its journey toward Viksit Bharat by presenting a budget that reflects a vision of progress, self-reliance, and inclusive development. Guided by the spirit of Sabka Sath, Sabka Vikas, Sabka Vishwas, and Sabka Prayas, this Budget ensures that every segment of society—farmers, entrepreneurs, middle class, and underprivileged—receives due attention.

With an increased emphasis on infrastructure building, promotion of manufacturing, use of technology and creation of an investor-friendly environment, India is steadfast in achieving its vision as a developed economy. In line with past budgets, the government has increased public spending on infrastructure and focused on resource mobilisation. The capital expenditure on key infrastructure sectors has grown cumulatively at a 38.8 per cent rate from FY20 to FY24. The bets to increase capex in post-Covid recovery period paid off, relative to other emerging markets. Despite geopolitical tensions, volatility in global markets and inflationary pressures, India’s long-term FDI outlook remains favourable, surpassing the USD 1 trillion mark in September 2024. However, the net FDI figures remained muted in the past two fiscals.

One of the most anticipated announcements in this Budget is the confirmation that the new income tax bill will be released next week, with Nyaya as its guiding principle and good governance as its ultimate goal. In Finance Minister Nirmala Sitharaman’s words, “The new bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words. It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation.”

In the spirit of the tax administrations’ commitment towards “trust first, scrutinise later”, the Budget proposes tax reforms keeping the following factors in mind—personal income tax reforms for the middle class, rationalisation of TDS/TCS for easing difficulties, encouraging voluntary compliance, reducing compliance burden, ease of doing business, employment and investment. The necessity of these reforms is interlinked with constant feedback from the taxpayers.

A key highlight of this year’s Budget is the overhaul of the personal income tax structure, which brings much-needed relief to the middle class. Over the last decade, the non-taxable income threshold for individuals has been increased from Rs 2.5 lakh to Rs 12 lakh, a significant step towards reducing the tax burden. Salaried individuals stand to benefit even further, with the threshold rising to Rs 12.75 lakh, after factoring in the revised standard deduction of Rs 75,000. This alone is expected to result in annual tax savings ranging from Rs 30,000 to Rs 1,10,000 annually, making the new tax regime more attractive and rendering traditional exemptions redundant.

Tariffs and foreign investment

A strong emphasis has also been placed on providing tax certainty for foreign investors and multinational enterprises. A presumptive taxation scheme for non-residents providing technology services to Indian electronic manufacturers has been introduced at a flat tax rate of 25 per cent.  Safe harbour rules for transfer pricing are proposed to be expanded to cover electronic manufacturing, and for lending greater predictability. The most path-breaking announcement is the review of India’s 2017 bilateral investment treaty.

In an effort to bolster investments in the International Financial Services Centre (IFSC), tax concessions have been extended for commencement of operations until 31 March 2030. Similarly, restrictions on life insurance proceeds for IFSC-based insurance offices have been removed. These measures are designed to position India as a key player in the global financial ecosystem, attracting both domestic and international capital.
Anticipating US action on tariffs, India seems to have made the first move by revamping its tariff structure by reducing the slabs to eight rates. It further proposes to fully exempt critical minerals such as cobalt powder, lead, zinc and 12 others. A host of customs-related exemptions for targeted sectors have remained a high priority in the list of Budget announcements. A pen picture of the customs rejig is suggestive of India’s bid to attract and propel investments en masse in critical sectors where gargantuan tariff lines were traditionally deemed as disincentivising foreign investments. Such efficiency should serve as a blueprint to propel the next decade of customs-driven reforms in the country.

Trust as the foundation

Beyond taxation, the Budget continues to prioritise agriculture, MSMEs, and infrastructure, recognising them as essential drivers of our growth story. The government has revised investment and turnover limits for MSMEs in order to propel and achieve higher efficiencies of scale, technological upgradation, and better access to rungs of capital. The investment and turnover limits for the classification of all MSMEs will be enhanced to 2.5 and 2 times respectively. To improve access to credit, a Rs 2 crore loan scheme for first-time entrepreneurs, with a special focus on women and marginalised communities, has been introduced. The fine print of the Finance Bill, when read in consonance with the bouquet of Budget announcements, should steer India as a pole star for change, customisation, and cosmopolitanism.

While the Budget provides significant relief through tax cuts, simplified compliance, and enhanced investment incentives, it remains mindful of fiscal responsibility. The government acknowledges that it will forego approximately Rs 1 lakh crore in direct tax revenue and Rs 2,600 crore in indirect taxes as a result of these reforms. However, it remains steadfast in its belief that trust is the foundation of good governance, and that a taxpayer-friendly regime will ultimately drive long-term compliance and economic prosperity.

As India marches towards Viksit Bharat, this Budget serves as a critical milestone in shaping the country’s economic future. With a clear focus on growth, inclusivity, and efficiency, the government has taken decisive steps to build a stronger, more resilient, and self-reliant economy. The success of these measures will depend on effective implementation, administrative efficiency, and active collaboration between the public and private sectors. If executed well, this Budget has the potential to lay the foundation for an era of sustained economic growth, ensuring that every Indian benefits from the nation’s progress.

Mukesh Butani is Managing Partner and Seema Kejriwal is Partner at BMR Legal Advocates. With inputs from Shruti Agarwal and Drishti Goel, Senior Associate and Associate at BMR Legal. Views are personal.