The Indian government enacted its Union Budget 2025 on Feb. 1, 2025. The Union Budget 2025 presents a framework for economic resilience: providing a boost to domestic consumption, simplification of tax provisions, sectoral reforms, emphasizing tax relief, reduction in compliance burdens, encouraging voluntary compliances, and infrastructure development. The Union Budget aims to advance the nation toward the long-term goal of “Viksit Bharat” or “Developed India” by 2047 by focusing for the next five years on these areas:
- Spurring agricultural growth and productivity.
- Building rural prosperity and resilience.
- Taking everyone together on an inclusive growth path.
- Boosting manufacturing.
- Supporting micro, small, and medium enterprises (MSMEs).
- Enabling employment-led development.
- Investing in people, economy, and innovation.
- Securing energy supplies.
- Promoting exports.
- Nurturing innovation.
Further, this budget aims to initiate transformative reforms across six key domains. Over the next five years, these reforms are expected to significantly enhance India’s growth potential and global competitiveness. The domains are:
- Taxation
- Power sector
- Urban development
- Mining
- Financial sector
- Regulatory reforms
Some of the key policy measures introduced by the Indian government include:
Establishment of Education Centre of Excellence
The Budget continues to prioritize skilling by establishing a Centre of Excellence in Artificial Intelligence for Education, with a total outlay of 500 crore rupees (about $0.05 billion).
Ease of doing business
The Indian government intends to establish a committee for regulatory reforms to review all nonfinancial sector regulations, certifications, licenses, and permissions.
Bilateral Investment Treaties
The current model Bilateral Investment Treaty (BIT), signed by the Indian government with various countries, will be revamped to make it more investor-friendly, fostering sustained foreign investment and upholding the spirit of “First Develop India.”
Urban sector reforms
The Indian government plans to establish a Challenge Fund of 1 lakh crore rupees (around $1.15 billion) to implement proposals for transforming cities into growth hubs.
Promoting innovation and entrepreneurship
The Indian government will allocate 20,000 crore rupees (around $0.22 billion) to support private sector-driven research, development, and innovation activities.
Promoting domestic manufacturing
The National Manufacturing Mission will be established, focusing on five key areas: ease and cost of doing business; creating a future-ready workforce for in-demand jobs; fostering a vibrant and dynamic MSME sector; ensuring the availability of technology; and producing quality products.
Sustained energy transition efforts
A Nuclear Energy Mission for the research and development of small modular reactors (SMRs) will be established with an outlay of 20,000 crore rupees (around $0.22 billion). The Indian government plans to bolster clean technology manufacturing, focusing on increasing domestic value addition and developing the ecosystem for solar photovoltaic cells, electric vehicle batteries, motors and controllers, wind turbines, very high voltage transmission equipment, and grid-scale batteries.
Impetus to Foreign Direct Investment
The Foreign Direct Investment (FDI) limit for insurance companies will be raised from 74% to 100% under the automatic route, on the condition that the entire premium is invested within India.
Direct tax developments
The Union Budget includes a significant number of tax developments, which will apply from April 2025 to March 2026:
- The benefit of the sunset clause for incorporation of startups eligible for tax holiday benefits will be extended to March 31, 2030, from March 31, 2025 (subject to satisfaction of certain conditions).
- There is no change in corporate tax rates for Indian companies.
- Foreign companies offering services or technology to Indian firms for designated electronics manufacturing will be subject to a presumptive tax rate of 25% on gross receipts, resulting in an effective tax rate of less than 10%.
- Nonresidents/foreign companies purchasing goods in India for exports wouldn’t constitute a significant economic presence.
- Rationalizing of capital gains tax rate (tax rates): The long-term capital gain tax rates for foreign institutional investors (FIIs) on the transfer of certain securities (i.e., unlisted shares/listed bonds/debentures/other securities) shall be rationalized from 10% to 12.5%. This tax rate will align with the long-term capital gains tax rate of 12.5% applicable on the transfer of listed equity shares/equity-oriented mutual funds/units of a business trust by an FII.
- Transfer pricing: The Indian government will provide the taxpayers an option to choose a block transfer pricing assessment, which results in an arm’s-length price determination of international transactions and specific domestic transactions for a block of three years. This is intended to rationalize and lessen the audit and litigation burden on taxpayers and tax officers.
- The deadline for filing an updated income tax return in India will be extended from the current 24 to 48 months after the end of the relevant assessment year.
- The Indian government plans to streamline the procedure for faster approval of mergers of entities and expand the fast-track mergers process to make it simpler.
- The Indian government will introduce a New Income Tax Bill in the Parliament within a week, which will be clear, direct, simple to understand, and reduce litigation. The New Income-tax law will be close to half of the present Income-tax law.
Indirect tax developments
The Union Budget includes a significant number of tax developments such as:
- Custom modifications. The Union Budget 2025 has made some significant adjustments to customs rates, applicable starting on Feb. 2, 2025. The government has suggested a complete exemption from the Basic Customs Duty (BCD) for 12 other essential minerals, cobalt powder, and trash and scrap from lithium-ion batteries. This will ensure that these materials are available for manufacturing in India and generate employment opportunities for young people. Another notable change is the export duty exemption granted for crust leather, reducing the current 20% duty to facilitate exports by small tanners. In the marine sector, the BCD rates for frozen fish paste and fish hydrolysate will be lowered from 30% and 15%, respectively, to 5%.
- GST modification. The government plans to establish a legal framework that would implement a track and trace system for certain commodities that are prone to GST evasion. This step will enable authorities to monitor the movement of these goods across the supply chain using unique identification markings affixed by designated persons.
Next steps for businesses operating in India
The Union budget 2025 was passed on Feb. 1, 2025, and will soon receive the president of India’s consent. Through the prioritization of investment, innovation, regulatory reforms, and tax simplification, the government aims to promote broad-based and sustained economic growth, specifically to stimulate private sector business activity and revive consumption.
Businesses with operations or interests in India should consult with their advisors to learn more about how the provisions could affect those operations and to find out what opportunities may exist for growth in the new programs that are outlined. Those who have been considering creating a presence in India should seek advice on whether any of these budget provisions would make expansion into the country more or less desirable.
