India’s Union Budget 2025-26: Key Takeaways

India’s Finance Minister presented the annual budget (2025-26) of Government of India today, that outlined the priorities and measures for the immediate and short to the medium term aimed at promoting inclusive economic growth, attracting investments, and enabling sustainable development, towards the goal of a developed India (Viksit Bharat).

The government intends to do so while sticking to the fiscal glide path with the fiscal deficit for 2025-26 estimated at 4.4 per cent of the Gross Domestic Product (GDP), which is lower than that estimated for the preceding year (2024-25). The central government debt to GDP as a per centage is estimated to 56.1 per cent for the coming fiscal. This will support Government of India’s prospects for a sovereign rating upgrade and enhances India’s attractiveness for foreign investors. This will also provide space to India’s central bank to cut interest rates and enhance liquidity.

It will be achieved on back of government not significantly increasing the overall expenditure same for the coming year whilst making changes to the allocation to various ministries/department (sectoral spends) and other spends in line with the trends of utilisation in the year gone by. Government of India’s total expenditure for 2025-26 is estimated at about USD 585 billion (INR 50.65 lakh crore, currency conversion at today’s dollar-rupee rate). Of this, the capital expenditure, a key driver of infrastructure and asset growth and which has a multiplier effect on the economy, will see a roughly 10 per cent increase over the current fiscal to about USD 130 billion (INR 11.21 lakh crore) in 2025-26. However, this comes on back of the government not being able to spend the budgeted amount for the current fiscal, owing to elections in the first half of the year, and therefore had to revise the estimate.

In what can be termed as a directionally positive budget, the underlying theme is to boost private consumption demand in the economy, whilst staying on path of fiscal consolidation and spur manufacturing, services and agriculture sectors through a mix of direct and indirect measures such as tax/duty cuts and concessions, targeted actions and schemes to support specific sections of society and small and medium businesses, provision of production linked incentive schemes for labour intensive sectors, and reforms that enable deregulation and reduction in compliance burden, amongst others. The Economic Survey tabled yesterday in the Parliament of India, projects India’s GDP to grow between 6.3-6.8 per cent in 2025-26, and some of the measures proposed in the survey have found resonance in the budget plan and proposals. Some of the key takeaways from the Union Budget are provided below.

Enabling Investments, Ease of Doing Business & Reforms

• Government of India has increased the foreign direct investment (FDI) limit in insurance sector to 100 per cent, from the current 74 per cent, subject to entire premium collected being invested in India. In addition, the government will review the current guardrails and conditionalities associated with the insurance sector towards their simplification, including aspects such as management personnel appointment and repatriation of dividends.
• India will also revamp the current model of Bilateral Investment Treaties (BIT) to encourage sustained foreign investment and make it more investor friendly. While India signed BIT with United Arab Emirates (UAE) and Uzbekistan last year, a revamp of BIT will help address reservations other countries have expressed and execute more of these, such as the ones being negotiated with UK, Saudi Arabia, Qatar and the EU.
• The Government has also announced the second Asset Monetization Plan for 2025-30, which unlocks value of non-core assets (land, building, and other immovable properties) through monetization via development of industrial, commercial, tourism, infrastructure projects, will be launched to plough back approximately USD 115 billion (INR 10 lakh crore) into new projects. It will also streamline the process and provide more clarity to investors in the second plan. The government will also ask each infrastructure-related ministry to come up with a 3-year pipeline of projects that can be implemented in Public Private Partnership (PPP) mode.
• A significant announcement, which has also been a long-standing demand of the industry, is the revamped Central KYC (Know Your Customer) Registry to simplify the KYC process which will be rolled out this year. This is expected to reduce the compliance burden especially for businesses in the financial services space as well as individuals.
• The government will also set up high-level committee for regulatory reforms that will review all non-financial sector regulations, certifications, licenses, and permissions, as part of its endeavour to have light-touch regulatory framework based on principles and trust and enhancing Ease of Doing Business in the country. This committee is expected to submit its recommendations with the government within a year. It presents an opportunity for businesses across sectors to share their concerns especially around inspections and compliances that are becoming burdensome for them. Government will also decriminalise more than 100 provisions in various laws through the Jan Vishwas Bill 2.0 that it plans to introduce soon.
• Government of India has also announced that it will introduce a scheme for determining arm’s length price of international transaction for a block period of three years, as opposed to the yearly examination, to streamline the process of transfer pricing. This will be beneficial for multinational companies (MNCs) operating in India, as well as for the Global Capability Centres (GCCs), for the latter the government will also formulate a national framework to serve as guidance to states for promoting them in emerging tier 2 cities. The government also expanded the scope for safe harbor rules, including a simplified safe harbor regime for investment funds managed by fund manager based in India’s only International Financial Services Centre (IFSC) located in GIFT City in Gujarat. The Government has also announced that the sunset dates related to IFSC units for exemptions, deductions and relocation in various sections shall be extended to March 31, 2030, which was about to end this year.
• The government has also extended the tax benefits available to Sovereign Wealth Funds and Pension Funds investing in infrastructure by five years to March 31, 2030. Tax exemptions on income earned by way of dividend, interest and long-term capital gains arising from such investments will qualify for exemption. Additionally, large ships above a specified size will be included in the infrastructure harmonized master list (HML).
• Mining sector reforms, including those for minor minerals, will be encouraged through sharing of best practices and institution of a State Mining Index. The government will also bring out policy for recovery of critical minerals from tailings.
• A new forum for regulatory coordination will be set up to enhance the development of pension products and ensure broader access to retirement savings.
• The announcements also indicate a strategic focus on shipping, nuclear energy, and electronics.
  • Finance Minister Nirmala Sitharaman said that there would be two amendments made – to the Atomic Energy Act and to Civil Liability for Nuclear Damage Act – aimed at achieving energy security.

Expanding manufacturing, with focus on MSMEs and in labour intensive industries

• The government has unveiled a National Manufacturing Missionaimed at supporting small, medium, and large industries. The mission will provide policy guidance and execution roadmaps for both Union ministries and state governments, fostering growth across the manufacturing sector. This builds on the 2024 budget’s expansion of the Production Linked Incentive (PLI) scheme, which now includes toys and footwear, bringing the total sectors covered to sixteen.
  • The total outlay for PLI schemes for FY26 is at roughly USD 2.25 billion (INR 19,482.58 crore) and an increase of more than 100 per cent over FY25
  • Maximum increase has been in for textiles, battery cell and storage technology, and automobiles.
  • Large scale electronics manufacturing continues to have a significant allocation
• Additionally, an Export Promotion Missionwill be established to support MSMEs in addressing non-tariff barriers in global markets, with facilitation groups set up to improve supply chains and promote select product exports.
• The government also announced indirect tax measuresto support sectors like EV battery manufacturing, medicines, industrial goods, and the leather industry. Notably, 35 goods for EV battery manufacturing and 28 goods for mobile phone battery manufacturing will be added to the list of exempted capital goods, further incentivizing production and innovation. These measures reflect a comprehensive approach to strengthening India’s manufacturing and export capabilities.
• Toy Hub, the government will launch a scheme to develop a national action plan for toys, focusing on creating clusters, enhancing skills, and building a robust manufacturing ecosystem. This initiative aims to produce high-quality, innovative, and sustainable toys that embody the ‘Made in India’ brand, fostering both creativity and self-reliance in the sector. Notably, India has transitioned into a net exporter of toys, marking a significant milestone for the domestic toy industry. These measures highlight the government’s commitment to boosting local manufacturing and promoting indigenous products.
• Enhanced credit guarantee cover for MSMEs

Healthcare

The government has allocated approximately USD 11.5 billion (INR 99,858 crore) in FY26 for the development, maintenance, and enhancement of India’s healthcare system, as well as research, marking an increase of about 9.5 per cent over the current fiscal. Additionally, roughly USD 282 million (INR 2,445 crore) has been earmarked for the Production-Linked Incentive (PLI) scheme to boost the pharmaceutical sector.

• In a significant step to improve healthcare affordability, Finance Minister announced the removal of customs duty on 36 life-saving drugs used for treating cancer, rare diseases, and chronic conditions. Previously, drugs such as Trastuzumab Deruxtecan, Osimertinib, and Durvalumab had their customs duty reduced from 10% to zero.
• Sitharaman further proposed adding six additional critical medicines to the list, which will now attract a concessional customs duty of 5%.
• She also emphasized continued support for patients under assistance programs, reaffirming that drugs supplied free of charge through these initiatives will remain exempt from Basic Customs Duty (BCD). Expanding this initiative, 37 more medicines and 13 new patient assistance programs have been added to the exemption list.
• Medical Tourism and Heal in India will be promoted in partnership with the private sector along with capacity building and easier visa norms.

Technology & E-Commerce

The Union Budget 2025-26 introduces strategic measures to enhance India’s e-commerce sector by addressing key challenges related to infrastructure, taxation, skilling, and technological advancements. These initiatives aim to foster growth in the gig economy, support startups, and position India as a global leader in digital commerce.

• Recognizing the contribution of gig workers the government will provide ID cards and register one crore gig workers on the e-Shram portal. Gig workers will now receive healthcare benefits under PM Jan Arogya Yojana, enhancing their social security in a rapidly growing e-commerce-driven economy.
• Continued investments in broadband expansion and digital infrastructure will improve connectivity, particularly in Tier 2 and 3 cities, enabling better penetration of e-commerce services.
• 50,000 Atal Tinkering Labs will foster innovation, helping young entrepreneurs develop digital-first solutions to enhance supply chain efficiencies and online commerce capabilities.
• A new Fund of Funds with approx. USD 1.15 billion (INR 10,000 crore) will be set up to support startups.
• This builds on the existing roughly USD 10.5 billion (INR 91,000 crore) commitments to Alternate Investment Funds (AIFs), encouraging capital flow into the startup ecosystem.
• Strengthening startup funding will boost innovation in logistics, fintech, AI-driven customer experiences, and last-mile delivery solutions—all critical to the e-commerce industry’s continued growth.
• Global partnerships will be leveraged to integrate cutting-edge training methodologies, further bridging the skill gap in India’s logistics ecosystem.
• The establishment of five National Centres of Excellence for Skilling will equip the workforce with industry-aligned skills in areas such as advanced manufacturing, AI, automation, and logistics. These centers will focus on practical training, apprenticeships, and certification programs, ensuring that young professionals are ready for jobs in digital commerce.

Agriculture

With a focus on enhancing credit to farmers, the Budget has introduced several measures to enable agriculture and rural sector growth.

• Enhanced credit for farmers under the Modified Interest Subvention Scheme
• Launch of scheme to support 100 districts with low agricultural productivity, benefiting more than 17 million farmers by providing better resources and training.
• National Mission on High Yielding Seeds to be launched aimed at strengthening the research ecosystem, targeted development and propagation of seeds with high yield, pest resistance and climate resilience, and commercial availability of more than 100 seed varieties released since July 2024.
• A five-year initiative to enhance cotton production and improve the livelihoods of cotton farmers.
• Self-sufficiency in key pulse varieties such as Toor, Urad, and Masoor, as well as edible oils, reducing dependence on imports.
• Investments will be made in improving the agricultural value chain, encouraging food and beverage industry growth, and supporting farmer-led organizations.

Income Tax & Other Tax Proposals

A significant measure was announced today towards increasing disposable income in the hands of citizens through nil tax under the new tax scheme for citizens with annual income up to approximately USD 14,000 (up to INR 12.75 lakh). By reducing the tax burden on the middle-income class, the government has sought to give more money in hands of this segment, which is expected to stimulate private consumption. In view of global economic headwinds, and slump in growth of investment expenditure in FY25 (6.4% in FY25 as compared to 9% in FY24 as per the first advance estimates), push was required on private consumption expenditure front to maintain Indian economy’s growth momentum. Further, reduction in TDS rates, while increasing the threshold amounts for tax deduction will help ease compliance for taxpayers.

The government will also introduce a New Income Tax Bill in the next week that aims to significantly simplify tax laws for the taxpayers and tax administrators, and it will almost be half of the current code.

On indirect tax front, changes in basic customs duties (BCD) in the Union Budget can be aligned with the ‘Make in India’s programme of the government, while addressing the inverted duty structure. Some of the key announcements are:

• Exempting cobalt powder and waste, the scrap of lithium-ion battery, Lead, Zinc and 12 more critical minerals from basic customs duty will lower battery costs, stimulate domestic manufacturing, in turn spurring the adoption of EVs. The proposal also aligns with the recommendation from the Economic Survey which suggested financial incentives for wider adoption of green practices. This is also expected to help in gradually reducing China’s dominance in EV supply chain. Economic Survey 2024-25 has also highlighted India’s dependence on EV imports from China. The proposal will help in indigenisation of EV production.
• BCD on Interactive Flat Panel Display (IFPD) increased from 10% to 20% and BCD on Open Cell and other components reduced to 5%. Increase in BCD on finished IFPDs will make imported finished products more expensive. This will help enhance competitiveness of the domestic manufacturers. On the other hand, reduction of BCD on open cell which is an essential component in local assembly will result in cost reduction in component sourcing, thereby promoting domestic manufacturing.
• Exempting customs duties on open cells of LCD/LED TVs, the government has endeavoured to promote local assembly and domestic production of LCD/LED TVs.
• Further, exempting social welfare surcharge on 82 tariff lines that are subject to cess will help reduce duty burden.

Among other proposals, the Government plans to give a big push to the tourism sector, through top development of top 50 tourist destinations in partnership with states in a challenge mode. The government sees it as a driver of employment-led growth and has also introduced measures to improve infrastructure, skills and overall ease of travel, including streamlined e-visa facilities along with visa-fee waivers for certain tourist groups.