No income tax on those earning up to Rs 12 lakhs per year in India

India plans to cut personal income tax rates to boost middle-class spending power, Finance Minister Nirmala Sitharaman said on Saturday, as she announced an annual budget that also sought to increase private investment to strengthen growth.

Measures to assist the poor, youth, farmers and women were also included in the budget for 2025-26, Sitharaman said, highlighting plans for “transformative reforms in taxation”.

The government said people earning up to 1.28 million rupees ($14,800) per year will not have to pay any taxes, raising its threshold from 700,000 rupees. It also lowered tax rates for people earning above the new threshold, with the measures to cost around 1 trillion rupees in tax revenues, Sitharaman said.

The government, however, continued to improve its finances, targeting a fiscal deficit of 4.4% of GDP in 2025-26, down from a revised 4.8% of GDP in the current year.

The government will borrow 14.82 trillion Indian rupees ($171 billion) via the bond markets to fund this year’s fiscal deficit.

To balance the revenue lost, the government has budgeted for a modest increase in capital spending this year, which will rise to 11.21 trillion rupees in 2025-26 compared to a revised 10.18 trillion in the current year.

Reforms sought

The country’s chief economic adviser, in a report released on Friday, forecast India’s economy would remain sluggish in the fiscal year beginning April 1, advocating long-delayed reforms in areas such as land and labour to boost medium-term growth.

While near-term growth is in line with the 10-year average, India needs a growth rate of 8% to meet its longer-term economic goals and create enough jobs for its large, youthful population.

Economists have suggested the government ease the burden on individuals through tax cuts on income and energy products and to build on the $24 billion programme of job creation schemes announced in the first post-election budget in July.

The Nifty 50 and the BSE Sensex swung between gains and losses as the finance minister presented her budget.

Focus on the farm field

To boost productivity across the farm sector, the government will launch a national mission to push high-yielding crops, with a special focus on pulses and cotton production.

To help farmers, the limit for subsidised credit has been raised to 500,000 Indian rupees ($5,778) from 300,000 rupees earlier.

The government will also launch missions to push manufacturing and exports, Sitharaman said, without going into details.

To deepen the penetration of insurance in the economy, the foreign direct investment limit on insurance was raised to 100% from 74% currently.