The Finance Minister’s willingness to placate the middle class will appear as a shot in the arm for investors and consumers. Thanks to the rationalisation of tax slabs and rates, the ordinary income-earner will now carry a lighter burden on his shoulder.
This will enable him to direct a larger part of his savings towards investments.
Budget 2025 will empower the average middle-income householder, allowing her to spend more freely -- an action that is most definitely welcome in the context of declining consumption and strong inflationary signals.
Overall consumption patterns have lately demonstrated weak trends, while investment sentiments have been hit by lower equity valuations. The middle-class tax payer is particularly constrained by higher prices on all fronts.
The government, which has specifically referred to the triumvirate constituted by “democracy, demography and demand”, has provided a special sop to small savers. There will be an exemption for withdrawal from National Savings Scheme (NSS), a popular administered-rate tool, for any amount deposited under the scheme and the interest accrued thereon with respect to which a deduction has been allowed. The FM has acknowledged that a number of senior and very senior citizens have old NSS accounts which are not fetching them any interest.
Further, the tax benefit available to NPS (National Pension Scheme) under the relevant section of the Income Tax Act will be extended to contributions made to NPS Vatsalya as well. Vatsalya is aimed at providing long-term financial security and supporting early saving practices. The innovative pension programme was unveiled last year.
The FM, however, has decided to bypass the pensions space. This, despite a growing demand for superior retirement and social security benefits, especially for senior citizens.
The only consolation is that the government has indicated that it will set up a forum for regulatory coordination and development of pension products. It is much too early to speculate on this front, but interested quarters in the retirement market will surely want to know more.
The other concession to social security relates to the welfare of gig workers on online platforms. Such workers will be provided healthcare under the PM Jan Arogya Yojana.
While the government has been fairly generous on the individual taxation front, it has not particularly shown any interest in identifying newer investment avenues.
Unlike in some of the earlier years, the 2025 edition of the Budget has not spawned novel savings opportunities. There is no indication that the authorities are thinking of modifying capital gains taxation as a sop for investors. The investment community’s demand for rationalised long term capital gains tax has thus been overlooked. It could have been different this time.
The market will also wait for fresh and detailed announcements on “KYC Simplification”, which in a country like India (with multiple financial regulators — for securities, insurance, mutual funds and pension) will be very beneficial. Certain KYC processes, despite several rounds of reforms initiated in recent years, are still cumbersome. Therefore, it is a matter of relief that the government has referred to a “revamped Central KYC Registry”, which is expected to materialise this year. A streamlined system to enable periodic update is also on the cards.
The FM has spoken in detail on regulatory reforms for non-financial sectors; a similar strategy for financial sector reforms seems warranted as well. Many fresh products and services have appeared on the horizon; financial sector innovations are here to stay. No budgetary announcement, however, has been made on this front. Ergo, we will have to wait patiently for such a move.