Union Budget 2025- Major Announcements and Key highlights!

In appreciation of the middle class's role in national progress, the government has consistently worked towards lowering their tax obligations. Finance Minister Nirmala Sitharaman announced that individuals earning up to ₹12 lakh annually will now be exempt from income tax.

For salaried taxpayers, this exemption extends to ₹12.7 lakh due to the inclusion of a ₹75,000 standard deduction. Additionally, tax slabs and rates are being revised to provide further relief across all income groups.

Anticipated Direct Tax Code Reforms

• Comprehensive Tax Code Overhaul: The Direct Tax Code (DTC) seeks to modernize and simplify existing tax laws by reducing the number of sections and eliminating outdated provisions.
• Standardization of Tax Rates: The proposed code may implement a flat 15% tax rate on dividend income and introduce a 35% tax bracket for high earners, replacing the current surcharge-based system.
• Minimizing Exemptions and Deductions: To simplify tax compliance, many exemptions and deductions may be removed, leading to a streamlined tax structure with lower overall rates.
• Capital Gains Tax Uniformity: The tax treatment across different asset classes is expected to be standardized to remove existing disparities.
• Expansion of Digital Tax Compliance: The focus will be on transitioning to a fully digital tax system, replacing traditional compliance methods with automated e-filing and AI-driven audits.
• Incentives for Startups and MSMEs: The revised tax code is likely to introduce tax incentives for startups and micro, small, and medium enterprises (MSMEs) to foster innovation and growth.
• Revised Assessment Framework: The process for tax assessments and disputes is expected to be made more transparent, reducing litigation and ensuring a faster resolution mechanism.
• Flexible Tax Regime: The new system may provide taxpayers with the option to either stick with existing tax benefits or opt for a simplified structure with reduced rates but no deductions.

Implications for CA Students and Chartered Accountants:

• Increased Tax Filings and Advisory Opportunities: The revised tax structure will create more advisory and compliance work for Chartered Accountants (CAs), as businesses and individuals seek guidance on optimizing tax benefits.
• Growth in Financial Planning Roles: CAs specializing in tax planning will have new opportunities to assist salaried individuals in making informed financial decisions.
• Shift Towards Digital Compliance: With an emphasis on simplified filing and increased exemptions, CA professionals will need to stay updated with automated tax assessment systems and digital platforms.
• Expanded Learning for CA Students: Aspiring CAs must understand the new tax regime and its implications for corporate and individual taxation, strengthening their expertise in evolving tax policies.

5. Customs and Import Duty Reforms

Motives:

• To encourage domestic manufacturing by reducing dependency on imported raw materials.
• To ensure cost-effective production of critical goods for industries.

• Full exemption proposed for cobalt powder, lithium iron battery waste and scrap, lead, zinc, and 12 other critical minerals to boost domestic resource utilization.
• To support local production of technical textiles, two additional types of shuttle-less looms will now be exempt from import duty.
• Basic Customs Duty (BCD) on Flat LED TV panels will increase from 10% to 20%, aligning with the Make in India vision to encourage domestic electronics manufacturing.
• 35 more capital goods for lithium-ion battery production and 28 items for mobile phone manufacturing will be added to the duty-exempt list.
• BCD on carrier-grade internet switches will be reduced from 20% to 10%, facilitating more cost-effective technology adoption.
• Nine additional items will be included in the duty-free inputs list to support various industries.
• A fixed time limit of 2 years (extendable by 1 year) will be introduced for provisional assessments under the Customs Act, reducing uncertainty and costs in trade.
• The time limit for the end use of imports will be extended from 6 months to 1 year, enabling industries to better manage their import strategies.

Financial Sector Reforms

• The government has proposed increasing the Foreign Direct Investment (FDI) limit in the insurance sector from 74% to 100%, provided the companies reinvest their entire premium earnings within India.
• To strengthen financial inclusion, the India Post Payment Bank will expand its reach in rural areas, ensuring better banking access.
• Public sector banks will introduce a Grameen credit score framework, assisting in financial evaluation for rural borrowers.
• A regulatory coordination forum will be set up to oversee the development of pension products, enhancing retirement planning options.
• A revamped central KYC registry will be launched in 2025, improving efficiency in customer verification processes and accelerating re-KYC updates.
• Bilateral investment treaties were signed with two countries in 2024, and the government plans to revamp the current BIT framework to create a more investment-friendly environment.
• The Foreign Direct Investment (FDI) cap in the insurance sector has been raised from 74% to 100%, attracting global investors and improving financial services.

Reference Links:-

How to Prepare Financial Statements: A Step-by-Step Guide with Examples

Why It Is Important to Have Accounting Standards in India