Budget 2025 explained: Income tax, FMCG, insurance, aviation, & key sectors

Summary

The Budget 2025 focuses on significant changes to personal income tax, particularly benefiting those in the new tax regime, with no tax up to ₹12 lakh, including rebates. While consumption sectors like FMCG and autos saw stock boosts, the government's focus on capital expenditure was more conservative this year. The fiscal deficit target is set at 4.4% of GDP, indicating a balanced approach. Key budget announcements included a focus on agriculture, aviation, and insurance, with notable changes like increased foreign investment in insurance and alterations to tax treatment for ULIPs. However, the long-term impact remains to be seen.

Takeaways

• 😀 No changes in tax for equity mutual funds and stocks, but major tax revisions for income tax in Budget 2025.
• 😀 The Finance Minister announced that no income tax will be applicable on earnings up to ₹12 lakh, but this only applies to the new tax regime.
• 😀 Those in the old tax regime who claim exemptions like HRA, medical insurance, and life insurance will continue with the same tax slabs as before.
• 😀 The new tax regime introduces revised tax brackets and rates, including tax rebates, which are part of the ₹12 lakh tax exemption.
• 😀 Consumption-driven growth is a major theme of the budget, with the government aiming to boost consumer spending to drive economic recovery.
• 😀 Stocks related to consumption, such as FMCG and auto stocks, saw a significant rise post-budget, reflecting investor optimism about consumption boosting the economy.
• 😀 The government has set aside ₹11 lakh crore for capital expenditure (Capex), though this represents a small increase compared to the previous year.
• 😀 The multiplier effect of infrastructure spending (roads, bridges, etc.) is key to creating jobs and stimulating more income and spending.
• 😀 The government aims to reduce the fiscal deficit to 4.4% of GDP, which is a major target after it spiked to 6.7% during FY22 due to COVID-related spending.
• 😀 The government has introduced tax changes affecting various sectors, including agriculture, aviation, and insurance, with notable impacts on specific stocks in these industries.

Q & A

What is the impact of Budget 2025 on equity mutual funds and stocks?

There is no significant tax change for equity mutual funds and stocks in Budget 2025, meaning investors in these areas will not see new tax implications.

How has the new tax regime in Budget 2025 affected income tax rates?

For individuals opting for the new tax regime, there have been significant changes in tax brackets and rates, including a promise of no income tax up to ₹12 lakh. However, this includes tax rebates, and the old tax regime remains unchanged for those claiming exemptions.

What does the ₹12 lakh no-income-tax promise entail in the new tax regime?

The ₹12 lakh no-income-tax promise includes tax rebates, and applies to those in the new tax regime. However, individuals in the old tax regime, who are claiming exemptions like HRA, medical insurance, and life insurance, are unaffected.

How does the government's decision to tweak taxes aim to impact consumption?

The government's tax cuts are intended to boost consumption by putting more money in the hands of the public. The idea is that this extra disposable income will be spent, driving the economy, especially in urban areas, which make up a large part of India's GDP.

What sectors saw a positive impact in the stock market after the Budget 2025 announcements?

Sectors like FMCG (fast-moving consumer goods), auto, and consumption stocks saw a positive impact. Stocks like Britannia, Zomato, Blue Star, Bajaj, and Maruti experienced a rise of 5-10% after the budget announcement.

What is the government's stance on capital expenditure (Capex) in Budget 2025?

While Capex is important for the multiplier effect on the economy, the allocation for capital expenditure in Budget 2025 is around ₹11 lakh crore, which is a marginal increase compared to the previous year. The government is walking a tightrope, balancing tax rebates with investments in infrastructure.

What is the multiplier effect, and how does it relate to government spending on infrastructure?

The multiplier effect refers to the economic boost that occurs when government spending on infrastructure, like roads and bridges, creates jobs and income, leading to increased consumption. The government estimates that for every ₹1 spent on infrastructure, ₹2.5 in benefits are generated.

What is India's fiscal deficit target for the current financial year, and how does it compare to previous years?

India's fiscal deficit target for the current financial year is 4.4% of GDP, a significant improvement from the 6.7% deficit in FY22, which resulted from increased spending during the COVID-19 pandemic.

What are the concerns surrounding the fiscal deficit target for FY 2025?

While the fiscal deficit target of 4.4% of GDP is considered achievable, experts are cautious about whether the government can meet this target. The target seems realistic, but there are concerns about revenue generation and whether expenditures will align with projections.

How did the budget impact agriculture and aviation sectors?

In the agriculture sector, the government announced a mission for high-yielding and climate-resistant seeds, which led to a rise in stocks of companies like Cavi Seeds and Mangalam Seeds. In aviation, the modified Udan scheme aims to improve regional connectivity, which boosted stock prices of airlines like Indigo.

What were the key announcements in the insurance sector following Budget 2025?

Budget 2025 includes raising the foreign direct investment (FDI) limit in insurance from 74% to 100%, which could lead to increased competition. However, changes in tax exemptions and regulations around Unit Linked Insurance Plans (ULIPs) could affect the growth of the insurance sector. ULIPs will now be taxed like equities, with capital gains tax applied if held for more than a year.