Union Budget 2025 Expectations Updates

It's that time of the year again when the Finance Minister is going to present the Union Budget on Feb 1st, 2025 in the parliament. With inflation and cost of living touching the roof, the rupee in a slide, and signs of slowdown everywhere, from consumer goods uptake to corporate results, there is a heightened expectation for some solid steps to arrest inflation and sustain growth. In this article, let us explore the key budget expectations in specific areas and find out what to expect from Budget 2025.

Budget Expectations 2025-26: Based on Current Scenarios and Trends

Income Tax

With the Finance Minister encouraging taxpayers to move to the new tax regime and a tax rebate for income up to Rs 7 lakhs, taxpayers hope for the rebate to be hiked to up to Rs 10 lakhs income. A much-desired breather from rising prices across the board whether it is food basket, housing, healthcare, or consumer goods. Higher disposable income is also likely to stoke spending, making it one of the key budget 2025-26 expectations for income tax.

Housing For All

Currently, the deduction for payment of interest on home loans is capped at Rs 2 lakhs per financial year. The principal portion is eligible for Section 80 C deduction. An increase in interest deduction limit would boost the real estate sector as well as the government's larger goal of ‘Housing For All’. The deduction is currently not included in the new tax regime. The addition of this benefit under the new tax regime along with a higher cap limit is on every home buyer’s wish list this budget season.

For Salaried Employees

For taxpayers in the old tax regime, a revision in the 80C limit is long desired taking into account high inflation. Also, the 80D tax deduction on health insurance premiums asks for revision to compensate for inflation in healthcare as well as an increase in health insurance premiums. This move would encourage higher savings and investments as well as work towards the government’s impetus for higher insurance penetration. Insurance for All by 2047 mission is one of the top budget 2025 expectations for salaried employees.

Employment Generation

The role of government in job growth and employment generation has been a point of discussion for long. Skill development, vocational training, and programs to reskill youth for emerging opportunities in new-age industries, manufacturing, retail, and technology sectors. Last budget the government allocated Rs 1.48 lakh crore towards education, employment, and skiling. This was a 30% increase in allocation over the last fiscal.

In Budget 2025, industry and the public expect added measures in skilling and employment as well as boosting the MSME sector, a key driver of employment. 

MSME Growth

India's micro, small, and medium enterprises (MSMEs) are advocating for the upcoming Union Budget 2025 to address critical challenges hindering their growth. A significant concern is the substantial credit gap of $530 billion, with only 14% of the 63 million MSMEs currently having access to formal credit. To bridge this gap, experts recommend expanding government schemes, promoting co-lending models, and enhancing digital lending platforms to facilitate easier and more affordable financing. Additionally, timely payments remain a pressing issue, as delays can severely impact the cash flows and operational sustainability of these enterprises. Implementing measures to ensure prompt payments, especially from larger corporations and government entities, is crucial. By addressing these concerns, the Budget can significantly bolster the MSME sector, which contributes approximately 30-40% to India's GDP.

AI and Digital Capabilities

Experts anticipate that the Union Budget 2025 will focus on strengthening India's digital transformation by advancing artificial intelligence (AI) and data science. There is a strong demand for initiatives that enhance indigenous capabilities in AI, making processes more transparent, efficient, and cost-effective across industries. Additionally, stakeholders are calling for tax incentives on eco-friendly technologies and a simplified GST structure for digital and automotive services to promote wider adoption and sectoral growth.

Defence Sector

With the previous budget allocating Rs.6.22 lakh crore to defence, including Rs.1.72 lakh crore for capital expenditure, experts anticipate a further rise to Rs.1.9 lakh crore to support infrastructure, mobility vehicles, and defence manufacturing under the Make-in-India initiative. While there is a strong push for domestic research and development to integrate the latest technology, the provided source does not specifically mention government measures for drone technology or manufacturing infrastructure. However, industry stakeholders expect announcements supporting advancements in this area, particularly in strengthening security and fulfilling both domestic and global demand.

Railways Sector

The Indian Railways is anticipated to receive a significant increase in capital expenditure, with allocations potentially rising to between Rs.2.9 trillion and Rs.3 trillion for the fiscal year 2025-26, up from Rs.2.55 trillion in the previous year. This enhanced funding is expected to support the expansion of the railway network, particularly in high-congestion areas and rapidly growing cities, as well as the introduction of additional high-speed Vande Bharat trains. The increased investment aims to modernize infrastructure, improve safety measures, and enhance overall efficiency within the railway sector.

Real Estate

The real estate industry expects the Union Budget 2025-26 to introduce measures aimed at boosting housing affordability and infrastructure development in India. With the affordable housing shortage projected to rise from 10.1 million units currently to 31.2 million by 2030, the sector seeks targeted initiatives to bridge this gap. The budget is anticipated to focus on policies that enhance affordable housing supply and support real estate growth, addressing key concerns in the industry.

Green Energy Sector

The Union Budget 2025 is expected to boost India's renewable energy sector by increasing funding for solar rooftop programs, offshore wind energy, and battery energy storage systems (BESS). The industry seeks higher allocations for green hydrogen initiatives, along with policy incentives and tax relaxations to enhance adoption. GST reductions on renewable components and higher export subsidies are also anticipated to lower costs and improve global competitiveness. These measures aim to accelerate India's transition to sustainable energy and strengthen its clean energy infrastructure.

Infrastructure Sector

The infrastructure sector anticipates a significant increase in budgetary allocations to stimulate private investment. The introduction of Variable Capital Companies is expected to offer more flexible investment structures, thereby attracting greater private sector participation. Additionally, aligning the holding period for assets involved in slump sales with other long-term capital assets is anticipated to simplify tax implications and encourage more transactions within the sector. These measures aim to enhance private sector engagement and drive growth in infrastructure development.

Stock Market

Investors are keenly anticipating potential reforms in the capital gains tax structure. Recent changes have led to concerns about increased tax burdens, especially for retirees and low-risk investors. The mutual fund industry, represented by the Association of Mutual Funds in India (AMFI), is advocating for the restoration of indexation benefits for debt mutual funds and the rationalization of the capital gains tax regime. Additionally, there is a call for the introduction of a Debt-Linked Savings Scheme to bolster long-term savings and develop the Indian bond market. Experts emphasize the need for a stable and predictable tax environment to enhance market liquidity and investor confidence.

Conclusion

As industry, general public, and investors eagerly await the Union Budget 2025-26, there are high expectations to announce measures and policy initiatives to address economic challenges and fuel growth. Infrastructure stimulus, fiscal management, inflation control, defence spending, focus on AI and digitisation, personal income tax reform, employment, and sector-specific policies remain the key themes to keep India's growth story going strong.