Budget 2025 Expectations: Key Tax Changes, Customs Reforms, and Sector Demands

As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2025 on February 1, 2025, businesses, taxpayers, and policymakers eagerly anticipate reforms that could streamline India’s tax and trade framework. From reducing customs duty slabs to revising income tax rates, this budget aims to address challenges, enhance infrastructure, and support economic growth amid fiscal constraints.

Here’s a detailed breakdown of key expectations and sector-specific recommendations for the upcoming budget.

Customs Duty Reforms: Simplifying Trade

India currently has over 40 customs duty rates, including specific duties, creating a complex framework for traders. The government aims to reduce the number of slabs, streamline processes, and resolve duty inversion issues to improve domestic manufacturing and export competitiveness.

• The US-India Tax Forum recommends a simplified structure with three slabs: 0%, 5%, and 10%, particularly beneficial for electronics manufacturing and exports.
• Free Trade Agreements (FTAs) limit flexibility for certain tariff lines, but reforms could make India more attractive for investments.

Tax Reforms: Higher Exemptions and New Slabs

The new income tax regime is expected to receive enhancements to attract more taxpayers:

• Annual Income Exemption: Proposed increase to ₹10 lakh tax-free income.
• New Tax Slab: A 25% rate for individuals earning between ₹15 lakh and ₹20 lakh annually.

This move aligns with the government’s efforts to boost disposable income and consumption while simplifying tax structures.

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Defence Sector: Modernisation Amid Budget Constraints

The defence budget for FY2024-25 was ₹6.22 lakh crore, a 4.79% increase over the previous year. For FY2025-26:

• Analysts expect capital expenditure to rise to ₹1.9 lakh crore, with a focus on mobility vehicles and naval infrastructure.

Modernisation remains a priority, though budget increases may be moderate due to fiscal consolidation.

Encouraging Retirement Savings and EV Adoption

• Retirement Savings: Proposals include raising NPS tax deduction limits and relaxing withdrawal rules to promote savings.
• EV Adoption: Clarity on perquisite taxation for EV use and reinstating purchase deductions could accelerate green energy adoption.

Telecom Sector: COAI’s Recommendations

The Cellular Operators Association of India (COAI) has submitted several proposals to reduce the financial burden on telecom operators:

Key Proposals:

1. Abolition of USOF Levy: Suspend the 5% contribution to the Universal Service Obligation Fund until the ₹86,000 crore corpus is fully utilised.
2. Reduced License Fees: Cut license fees from 3% to 1%.
3. Simplified Gross Revenue Definitions: Exclude non-telecom activities to reduce financial ambiguity.
4. Carry Forward of Business Losses: Extend the period from 8 years to 16 years to alleviate the impact of past dues.
5. Service Tax Exemptions: Relief for liabilities arising from AGR recalculations mandated by the Supreme Court.

Infrastructure: Key to Economic Growth

The government allocated ₹11.11 trillion for infrastructure in FY2024-25, an 11.1% YoY increase. For FY2025-26, the focus remains on:

• Addressing delays caused by land acquisition hurdles.
• Encouraging private sector participation.
• Incorporating sustainable practices to achieve the Viksit Bharat vision by 2047.

Hospitality Sector: Seeking Relief

India’s hospitality industry faces rising challenges due to:

• High GST rates compared to neighboring countries.
• Insufficient room supply and limited infrastructure support.

Hoteliers are calling for:

• Reduction in GST rates.
• Affordable credit access.
• Recognition of smaller hotel projects for infrastructure benefits.

Expectations from Taxpayers

A Grant Thornton Bharat survey highlights taxpayers’ preferences:

• 57% favor lower income tax rates.
• 53% support house property loss set-off under the new tax regime.
• 46% recommend lowering rates in the new regime to make it more attractive.

Key Takeaways

As Budget 2025 approaches, the government faces the challenge of balancing fiscal discipline with economic growth. Expectations include:

• Simplified tax structures to boost consumption.
• Customs duty reforms for trade efficiency.
• Increased focus on green energy, retirement savings, and infrastructure development.

The upcoming budget promises incremental reforms to support India’s evolving economic landscape.

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