Union Budget 2025: Key Tax, GST & MSME Updates Explained

Budget 2025

Union Budget 2025: Key Tax, GST & MSME Updates Explained

Budget 2025

The Union Budget 2025 introduces significant updates impacting income tax, GST, and MSMEs, aiming to simplify compliance, boost economic activity, and ease the financial burden on taxpayers. Below are the major highlights:

Income Tax Reforms

1. Revised Tax Slabs (New Regime for FY 2025-26)

Total Income (INR)Tax Rate
Up to 4,00,000Nil
4,00,001 – 8,00,0005%
8,00,001 – 12,00,00010%
12,00,001 – 16,00,00015%
16,00,001 – 20,00,00020%
20,00,001 – 24,00,00025%
Above 24,00,00030%

  • No tax for income up to INR 12,00,000, provided there are no capital gains.

  • Salaried individuals can avail of a standard deduction of INR 75,000, making income up to INR 12,75,000 tax-free.

  • Rebate under Section 87A: 100% of tax payable or INR 60,000, whichever is lower.

2. Updated Return Filing (Section 139(8A))

  • Taxpayers can now file updated returns within 48 months instead of 24 months.

  • Additional tax levied based on delay:

    • 12-24 months: 50%

    • 24-36 months: 60%

    • 36-48 months: 70%

  • Filing after 36 months is restricted if a show cause notice is issued.

3. Key Tax Exemptions & Reforms

  • Self-occupied Property: Up to two properties can now claim “Nil Annual Value,” removing deemed rental income.

  • National Saving Scheme (NSS): Withdrawals made after August 29, 2024, are tax-exempt.

  • Small Charitable Trusts: Registration period extended from 5 years to 10 years for trusts with total income not exceeding INR 5 crore.

4. TDS & TCS Rationalization

  • TDS Rate Reduction:

    • Insurance commission: Reduced from 5% to 2%.

    • Income from securitization trust: Reduced to 10% from 25-30%.

  • Threshold Increases:

    • Interest on securities: INR 10,000 (previously Nil)

    • Interest (other than securities): INR 1,00,000 for senior citizens, INR 50,000 for others

    • Dividend income: INR 10,000 (previously INR 5,000)

  • TCS on Sale of Goods: Removed to reduce compliance burden.

  • No higher TDS for non-filers (Sections 206AB & 206CCA omitted) unless PAN is unavailable.

  • Liberalized Remittance Scheme (LRS) Limit: Increased from INR 7 lakh to INR 10 lakh.

5. Virtual Digital Assets (Crypto-Taxation)

  • “Crypto-assets” are officially categorized as Virtual Digital Assets (VDA) under tax laws, ensuring stricter regulation and compliance.

GST Reforms

  • Reduced Pre-Deposit for Appeals:

    • E-way bill penalties: Lowered from 25% to 10% of penalty.

    • Other penalties: Previously Nil, now 10% of penalty.

  • Credit Note Adjustments: Output tax liability can only be reduced if the recipient reverses the corresponding Input Tax Credit.

Budget 2025

MSME Reforms

1. Revised MSME Classification

TypeOld Investment Limit (INR Cr)Old Sales Limit (INR Cr)New Investment Limit (INR Cr)New Sales Limit (INR Cr)
Micro152.510
Small105025100
Medium50250125500

This will expand MSME coverage, ensuring faster payments within 15 days under Section 43B(h) of the Income Tax Act.

Read More: Key Highlights of Union Budget 2025 – 2026

2. Business-Friendly Reforms

  • New Income Tax Bill: Expected by February 2025 to enhance middle-class spending.

  • Fast-Track Company Mergers: Proposed to improve efficiency and ease of doing business.

The Budget 2025 introduces major tax reliefs, eases GST compliance, and strengthens MSME support, fostering economic growth. The changes in tax slabs, exemptions, and compliance reductions are designed to encourage investment and spending, making the new fiscal year more business-friendly.

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Key Highlights of Indirect Taxes in Budget 2025

Indirect Taxes

Key Highlights of Indirect Taxes in Budget 2025

Indirect Taxes

The Budget 2025 session commenced on January 31, 2025, with the President of India’s address and the presentation of the Economic Survey 2024-25. The survey forecasts India’s GDP growth for FY 2026 to be between 6.3% and 6.8%, citing strong economic fundamentals. With a median age of 28 years, India is poised to become the world’s third-largest economy by 2030. The budget aims to drive economic growth, promote inclusive development, boost private sector investments, and enhance household purchasing power. It is designed to unlock the nation’s potential for global economic prominence and long-term prosperity.

Indirect Taxes – Customs

Customs Tariff & Legislative Changes

  • Amendments in Customs tariff rates and Harmonized System of Nomenclature (HSN) codes.

  • Revisions in the Customs Act, 1962 and Customs Tariff Act, 1975.

  • Rationalization of tariff structure for industrial goods, reducing seven tariff rates.

  • Limitation of cess/surcharge to a single levy.

Import & Export Adjustments

  • Introduction of voluntary revision of entries after clearance of goods for importers/exporters.

  • Relief measures on the import of drugs and medicines.

  • Promotion of domestic manufacturing and value addition in minerals, textiles, electronics, lithium-ion batteries, shipping, and telecom sectors.

  • Export incentives for handicrafts, leather, and marine products.

Time Limits & Exemptions

  • Provisional assessments now have a two-year limit, extendable by one year.

  • End-use conditions for inputs extended up to one year.

  • Exemptions and concessional rates under Notification No. 50/2017 – Customs (30.06.2017) extended until March 31, 2029, covering:

    • Bulk drugs for medicine manufacturing.

    • Bulk drugs for polio vaccines and mono-component insulins.

    • Drugs, medicines, and special foods for rare disease treatment.

    • 37 additional drugs and 13 new Patient Assistance Programs (PAP) added to the zero-duty list.

Tariff Reductions (Effective May 1, 2025)

  • Pharmaceutical Reference Standards & Certified Reference Materials (HS Code: 3822 90): Reduced from 30% to 10%.

  • Sorbitol (HS Code: 3824 60): Reduced from 30% to 20%.

Indirect Taxes – Goods & Services Tax (GST)

Revenue Estimates

  • CGST/IGST revised estimates for FY 2024-25: ₹6,506.46 crore.

  • Budget estimate for FY 2025-26: ₹6,870.52 crore.

Key Legislative Amendments to the CGST Act, 2017

  • Definitions (Section 2):

    • Revised definition of Input Service Distributor to cover interstate supplies taxed under reverse charge.

    • Inclusion of explanations for ‘Local Fund’ and ‘Municipal Fund’ under the definition of ‘Local Authority’.

    • Addition of a new clause defining Unique Identification Marking for Track & Trace Mechanism.

  • Time of Supply (Sections 12 & 13):

    • Omission of provisions related to the time of supply for vouchers.

  • Input Tax Credit (Section 17):

    • Modification of wording from ‘plant or machinery’ to ‘plant and machinery’ (effective July 1, 2017).

  • Input Service Distributor (Section 20):

    • Explicit provision for ITC distribution for interstate supplies taxed under reverse charge.

    • Effective from April 2025.

  • Credit Note (Section 34):

    • Mandatory reversal of ITC by recipients when suppliers reduce tax liability via credit notes.

  • Returns (Section 38 & 39):

    • Removal of ‘auto-generated’ references.

    • More inclusive ITC statement format.

    • Enabling conditions for return filing.

Indirect Taxes

  • Appeals & Pre-deposits (Sections 107 & 112):

    • 10% mandatory pre-deposit for penalty-only cases before appellate bodies.

  • Track & Trace Mechanism (New Sections 122B & 148A):

    • Introduction of penalties for non-compliance with Track & Trace requirements.

    • Enabling provisions for specified commodity tracking.

  • Non-Supply Transactions (Schedule III):

    • New entry for goods warehoused in SEZs or Free Trade Warehousing Zones (FTWZs) to be treated as neither goods nor services before clearance.

    • Clarifications on tax applicability and non-refund provisions for such transactions.

    • Effective July 1, 2017.

Read More: Understanding ITR Filing Requirements for NRIs in India

Implementation Timeline

The above amendments will take effect upon enactment of the Finance Bill, 2025, unless otherwise specified.

This budget reflects the government’s commitment to economic stability, ease of doing business, and robust trade policies, with a strong focus on manufacturing, healthcare, and export-driven industries.

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Key Highlights of Union Budget 2025 – 2026

Budget

Key Highlights of Union Budget 2025 - 2026

Budget

Union Finance Minister Nirmala Sitharaman presented her eighth budget on February 1, 2025, introducing major reforms aimed at benefiting the middle class, MSMEs, startups, and various industries. Key measures include tax exemptions, credit availability expansion, and sector-specific initiatives.

Tax Reforms and Relief

  • New Tax Regime: Incomes up to ₹12 lakh are now tax-free, providing significant relief to taxpayers.

  • Tax Deduction for Senior Citizens: Deduction limit doubled from ₹50,000 to ₹1 lakh.

  • Increase in TDS on Rent: Annual limit for TDS on rent increased from ₹2.4 lakh to ₹6 lakh.

  • Extended Time for Filing Updated Returns: Time extended from 2 years to 4 years.

Revised Income Tax Slabs

Income Range (₹)Tax Rate (%)
0 – 4 lakh0%
4 – 8 lakh5%
8 – 12 lakh10%
12 – 16 lakh15%
16 – 20 lakh20%
20 – 24 lakh25%
Above 24 lakh 
Budget

MSME & Entrepreneurship Support

  • Credit Cards for Micro Enterprises: Micro enterprises registered on the Udyam portal will receive customized credit cards with a ₹5 lakh limit.

  • Credit Guarantee Expansion: Cover for MSMEs increased from ₹5 crore to ₹10 crore, aiming to provide ₹1.5 lakh crore in credit over five years.

Revised MSME Classification

 

CategoryInvestment Limit (Current/₹ Cr)Revised (₹ Cr)Turnover Limit (Current/₹ Cr)Revised (₹ Cr)
Micro12.5510
Small102550100
Medium50125250500

  • First-Time Entrepreneurs Scheme: Term loans of up to ₹2 crore for 5 lakh new entrepreneurs, including women and marginalized groups.

  • Support for Labour-Intensive Sectors:

    • Footwear & Leather: Aiming to create 22 lakh jobs with a ₹4 lakh crore turnover.

    • Toy Industry: Positioning India as a global hub for sustainable toy manufacturing.

    • Food Processing: Establishment of a National Institute of Food Technology in Bihar.

Manufacturing & Export Promotion

  • National Manufacturing Mission: Focus on Ease of Business, Workforce Development, MSME Growth, Technology, and Quality Products.

  • Clean Tech Manufacturing: Emphasis on domestic production of solar PV cells, EV batteries, wind turbines, and grid-scale batteries.

  • Export Promotion Mission: Easier access to export credit and support for MSMEs in tackling non-tariff barriers.

  • BharatTradeNet (BTN): A unified digital platform to streamline international trade documentation.

  • Industry 4.0 & Global Capability Centres (GCC): Establishing a framework to promote tech talent and employment in Tier-2 cities.

  • Warehousing for Air Cargo: Streamlining customs and logistics for high-value exports.

Indirect Tax Reforms

  • Customs Duty Rationalization: Seven tariff rates removed, leaving only eight.

  • GST Amendments:

    • Reverse Charge Mechanism (RCM): Input Service Distributor (ISD) can distribute input tax credit on RCM supplies.

    • Extended Compliance Timelines:

      • Time limit for export of handicrafts increased from 6 months to 1 year.

      • Export of repaired foreign-origin goods extended from 6 months to 1 year.

  • Sector-Specific Duty Reductions:

    • Pharmaceuticals: 36 lifesaving drugs exempt from Basic Customs Duty.

    • Electronics: BCD on Interactive Flat Panel Displays increased to 20%, with exemptions for Open Cell TV parts.

    • Shipping & Telecommunications: Extended BCD exemptions for shipbuilding and reduced BCD on Ethernet switches.

TDS/TCS Rationalization

  • Higher Thresholds:

    • Senior Citizens: Interest income exemption doubled from ₹50,000 to ₹1 lakh.

    • Rental Income: TDS threshold increased from ₹2.4 lakh to ₹6 lakh.

  • TCS Changes:

    • Higher LRS Remittance Limit: Increased from ₹7 lakh to ₹10 lakh.

    • TCS Exemption for Education Loans: No TCS on education remittances funded by loans.

Reduction in TDS Rates

 

SectionDescriptionCurrent RateProposed Rate
194LBCIncome from securitization trust25% (Individual/HUF), 30% (Others)10%
206C(1)TCS on timber/forest produce2.5%2%

 

Ease of Doing Business Initiatives in Budget 2025

1. Streamlining Transfer Pricing Regulations: A new scheme will determine the arm’s length price of international transactions for a block period of three years instead of yearly examinations.

2. Expansion of Safe Harbour Rules (SHR): Predefined margins for international transactions will be expanded to reduce litigation and provide tax certainty.

3. Relief for Senior Citizens with Old National Savings Scheme (NSS) Accounts:

Withdrawals made on or after August 29, 2024, will be tax-exempt.

4. NPS Vatsalya accounts will receive similar tax treatment as regular NPS accounts, subject to overall limits.

5. Digitalization of Appellate Order Processing: Within two years, all tax-related appellate orders will be fully digitalized and paperless, as promised in the July 2024 Budget.

Budget

Other Highlighs announced in Union Budget 2025

1. Grameen Credit Score Framework: A new framework for rural India’s credit scoring.

2. FDI in Insurance: Limit raised to 100% for foreign direct investment.

3. Housing Fund: ₹15,000 crore allocated for completing 1 lakh housing units.

4. Atmanirbharta in Oil Seeds: Six-year mission to boost domestic oil seed production.

5. Cotton Yield Improvement: Aiming for better cotton yields with a five-year initiative.

6. Kisan Credit Card: Loan limit raised to ₹5 lakh for farmers.

7. Atal Tinkering Labs: To be set up in schools for innovation and skill development.

8. Broadband Internet: Provision for internet access in government secondary schools.

9. IIT Infrastructure: Expansion of IIT infrastructure, including IIT Patna.

10. Daycare Cancer Centres: 200 centres to be set up in district hospitals by 2026.

11. Duty on Life-Saving Drugs: Duty on six life-saving drugs reduced to 5%.

12. MSME Credit Guarantees: Coverage for MSME loans raised from ₹5 crore to ₹10 crore.

13. PPP Mode Projects: Three-year projects to be implemented in public-private partnership (PPP) mode.

14. Interest-Free Loans: ₹1.5 lakh crore allocated for infrastructure reforms in states.

15. Regional Airports: Over 100 new regional airports planned.

16. UDAN 2.0: Connecting 120 new airports, with a focus on Northeast and Bihar.

17. Export Promotion Mission: Easier access to export credit through a new mission.

18. Tariff Rates: Removal of seven tariff rates, leaving eight remaining.

19. Investment-Friendly Index: New index to promote state-level competition for investments.

20. Fiscal Deficit: Target set at 4.8% of GDP for FY 2025.

21. Capital Expenditure: ₹10.18 lakh crore allocated for capital expenditure.

22. Term Loan for Women Entrepreneurs: Loans up to ₹2 crore available for first-time entrepreneurs.

23. Nutritional Support: Nutritional aid for over 8 crore children and 1 crore lactating mothers

24. National Manufacturing Mission: New policy support for manufacturing.

25. Clean Technology Manufacturing Mission: Initiative to boost clean technology.

26. Nuclear Energy Mission: Focus on nuclear energy research and development.

27. Jal Jeevan Mission: Extended until 2028 to ensure water access.

28. Centre of Excellence in AI: ₹500 crore allocated to set up AI research centre.

29. EV Battery Manufacturing: Additional capital goods for EV battery production.

30. Visa Fee Waivers: Certain tourist groups exempt from visa fees.

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