Union Budget 2025: Look inside for growth and achieving financial goals

By now everyone knows that the Union Budget 2025 did a smart job of striking a balance between encouraging targeted investments and leaving more money in the hands of the Indian households. Helping hand for expansion of labour-intensive sectors, enhanced rebate limit to make income up to Rs 12 lakh tax-free and allowing two houses to be recognised as ‘self-occupied’, among other things have touched many lives across the length and breadth of this nation. Many experts on taxation and investments have already expressed their thoughts on how to make the most of these changes. However, there are three points that need to be deliberated upon. Here are these factors you must bear in mind:

Death of old regime

The Finance Minister Nirmala Sitharaman in her speech made it clear that only the new tax regime brings a higher threshold of Rs 12 lakh for zero tax outgo. In other words, the government has silently announced the death of the old tax regime. Till last year, more than 70% of the income tax returns were filed as per the new tax regime. The proposal of making income up to Rs 12 lakh tax-free is effectively making the old tax regime unattractive for most individuals. Though many experts have been vocal about this aspect, there are a few who are talking about a side effect of this.

Usually the term ‘side effect’ is used to connote ill effects of a medicine on the human body in medical science. However, we are referring to a good side effect of the old tax regime. The old regime incentivised investments – especially long-term investments to cut the tax bill.

Investors were buying life insurance policies, contributing to public provident fund and buying units of equity linked savings schemes (ELSS), also known as tax saving funds. Many investors started their mutual fund investments through ELSS and remained invested for the long-term thanks to the lock-in period. These investments educated retail investors about the benefits of long-term investing in equities through mutual funds. And that has benefitted many Indian households.

As the old tax regime becomes redundant, many youngsters may not look at such investments. Earlier, many experts argued that tax-savings should not be the sole reason to initiate an investment. Though that was true, an absence of incentive to begin investing may lead to a generation of investors who either do not care about investments or wake up late about funding their financial goals. This is a real risk for not only households but also for the government. Ultimately, the government benefited with those savings getting directed into tax-saving investments. Many of these are loans extended to the government. Society also became more stable as the number of financially independent households increased.

More money in households

As the income tax burden is reduced, middle class Indians are more likely to get some funds on hand. This money can be either spent, saved or invested. Reckless spending can hurt family balance sheets. Serious investments in financial assets can help most individuals fund their financial goals such as retirement or child’s education. For those, who are keen to use this money saved on tax for down payment for white goods, gadgets and even cars, an important aspect that needs to be checked is their ability to service loans. Avoid getting into debt trap.

The best way to handle this cash on hand is to allocate some money to consumption, and invest some in long-term investments.

Relaxations and compliance

To make life simpler, the finance minister had also raised the TDS threshold slightly higher. This also leaves tad more money in the hands of investors, as the fixed deposit companies and banks won’t deduct tax at source on interest payable if an investor furnishes permanent account number while opening the fixed deposit, as long as her interest income is below the threshold.

The budget provisions also allowed filing updated income tax returns (ITR) for four years, against two years earlier. This is a window of opportunity to rectify errors while filing ITR.

Importantly, filing ITR becomes an important task for everyone earning money. The government has raised the threshold for zero tax up to Rs 12 lakh by raising the rebate under section 87A. This triggers only when an investor files ITR. Individuals should file their ITR well before the due date and comply with norms.

To sum up, the Union Budget 2025 has set the momentum right for economic growth and investors should make the most of the realignment taking place in the financial markets. Make the most of opportunities around by starting an SIP in a multi-cap or multi-asset mutual fund scheme. For senior citizens and less aggressive investors, it is time to lock-in attractive interest rates in fixed deposits.

So, Wish you a Happy Investing Experience!

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Disclaimer: This report is prepared in his personal capacity and neither the Author nor Money Honey Financial Services Pvt Ltd assumes any responsibility or liability for any error or omission in the content of the article. Investments in mutual funds and other risky assets are subject to market risks. Please seek advice from an investment professional before investing.

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