The Union Budget 2025-26 was presented by Finance Minister Nirmala Sitharaman on February 1, 2025 and it shall be applicable from 1st April.
This budget impacts various legal frameworks, including taxation, corporate compliance, and financial regulations.
Focus areas include taxation reforms, regulatory amendments, and legal implications of financial policies.

Legal points
In the financial year 2025-26, India's Union Budget introduced several key reforms impacting taxation, capital expenditure, financial compliance, and investment laws. Here's an overview[1]:

1. Changes in Direct and Indirect Tax Laws Affecting Businesses and Individuals
   • Direct Taxation:
     • Income Tax Reforms: The new Income Tax Bill 2025 aims to simplify the tax framework by eliminating outdated provisions and introducing a unified 'Tax Year' to replace the dual financial and assessment year system.
     • Tax Slabs and Rates: Individuals earning up to INR 1.2 million annually are now exempt from income tax under the new regime. The revised tax brackets are as follows:
       • INR 1,200,001 to INR 1,600,000: 15%
       • INR 1,600,001 to INR 2,000,000: 20%
       • INR 2,000,001 to INR 2,400,000: 25%
       • Above INR 2,400,000: 30%
     • Corporate Tax Rates: No changes have been proposed to the corporate tax rates for both foreign and Indian companies.
   • Indirect Taxation:
     • Customs Duties Adjustments: The budget proposes increased customs duty rates on various items to encourage domestic manufacturing. While duty concessions are provided for importing capital goods and raw materials, tariffs on finished goods imports have been raised.
        
2. Legal Impact of Increased Capital Expenditure on Contractual and Financial Laws
   • Capital Expenditure Allocation: The government has earmarked INR 11.21 lakh crore (3.1% of GDP) for capital expenditure in FY 2025-26, focusing on infrastructure development.
   • Contractual Implications: This significant investment is expected to increase the number of public-private partnerships (PPPs), necessitating robust legal frameworks to manage complex contracts, performance guarantees, and dispute resolution mechanisms.
   • Financial Regulations: The surge in capital expenditure may result in increased borrowing and debt structuring, impacting compliance with banking laws, financial reporting standards, and insolvency regulations.
      
3. Strengthening Financial Compliance and Regulatory Mechanisms
   • New Income Tax Bill Provisions: The proposed Income Tax Bill 2025 grants tax authorities extensive powers to access taxpayers' electronic records, including emails and social media accounts, during searches. This move aims to enhance tax compliance but has raised concerns regarding taxpayer privacy rights.
   • Regulatory Enhancements: The budget emphasises the need for clear safeguards to balance legitimate tax investigations with digital rights protection, aiming to prevent potential taxpayer harassment.
      
4. Amendments to Investment and Business Laws to Enhance Economic Growth
   • Foreign Direct Investment (FDI): India has reduced tariffs on bourbon whisky from 150% to 100%, addressing trade concerns and potentially enhancing bilateral trade relations.
   • Simplified Tax Code: The introduction of a new simplified direct tax code aims to provide greater clarity, reduce litigation, and promote good governance, thereby creating a more conducive environment for business operations.

These reforms reflect the government's commitment to fostering economic growth, enhancing infrastructure, and streamlining regulatory frameworks to create a more business-friendly environment in India.

Taxation Reforms and Legal Implications

New Exemption Limit: ₹12 Lakh and Its Legal Impact on Tax Planning

The government has raised the income tax exemption limit under the new tax regime to ₹12 lakh. This means individuals with an annual income up to ₹12 lakh will not be liable to pay any income tax. For salaried taxpayers, considering the standard deduction of ₹75,000, the effective exemption limit extends to ₹12.75 lakh.

Legal Impact on Tax Planning:

• Simplified Tax Planning: With the higher exemption limit, many taxpayers may find it advantageous to opt for the new tax regime, reducing the need for intricate tax-saving investments and deductions.
• Investment Strategy Shift: Traditional tax-saving instruments under Section 80C, such as the Public Provident Fund (PPF) and National Savings Certificate (NSC), might see altered investment patterns as taxpayers reassess their portfolios in light of the new exemption threshold.
• Compliance Adjustments: Taxpayers will need to stay informed about the latest provisions to ensure accurate tax filings and to capitalise on the benefits offered by the revised exemption limits.

Revised Tax Slabs and Compliance Requirements

The budget has also introduced new tax slabs under the new tax regime for FY 2025-26:

• ₹0 to ₹4 lakh: Nil
• ₹4 lakh to ₹8 lakh: 5%
• ₹8 lakh to ₹12 lakh: 10%
• ₹12 lakh to ₹16 lakh: 15%
• ₹16 lakh to ₹20 lakh: 20%
• ₹20 lakh to ₹24 lakh: 25%
• Above ₹24 lakh: 30%

Compliance Requirements:

• Transition to New Regime: Taxpayers must evaluate whether to transition to the new tax regime or continue with the old one based on their financial situations and eligibility for deductions.
• Documentation: Maintaining accurate records of income and deductions remains crucial to ensure compliance and to facilitate seamless filing.
• Awareness and Education: Staying updated with the latest tax provisions is essential to maximise benefits and ensure adherence to the new regulations.

TDS and TCS Adjustments

Changes in TDS and Its Impact on Contractual Obligations

The budget has proposed several adjustments to TDS provisions:

• Rental Income: The TDS exemption limit on rental income has been increased from ₹2.4 lakh per annum to ₹6 lakh per annum (or ₹50,000 per month).

Impact on Contractual Obligations

• Lease Agreements: Landlords and tenants may need to revisit and possibly amend existing lease agreements to align with the new TDS thresholds.
• Payment Structures: Businesses and individuals must adjust their payment processes to comply with the revised TDS rates and ensure timely deductions to avoid penalties.

Compliance Burden on Landlords and Businesses Due to TDS Changes

• Reduced Compliance for Small Landlords: With the increased TDS exemption limit on rental income, small landlords earning up to ₹6 lakh annually are relieved from the obligation of TDS deductions, simplifying their compliance requirements.
• Enhanced Record-Keeping: Despite the relaxations, landlords and businesses must maintain meticulous records of rental transactions and TDS deductions to ensure compliance and facilitate audits.
• Awareness Initiatives: Landlords and businesses must stay informed about these changes to adjust their financial practices accordingly and to benefit from the revised provisions.

These reforms aim to simplify the tax structure, reduce the compliance burden, and enhance disposable income, thereby stimulating economic growth and investment.

Corporate and Business Law Implications

In the Union Budget for the financial year 2025-26, the Indian government has introduced several measures aimed at enhancing the business environment, impacting both multinational corporations (MNCs) and domestic companies. Key areas of focus include corporate tax adjustments, amendments to company law and regulatory frameworks, and the promotion of public-private partnerships (PPPs).

Corporate Tax Adjustments: Effect on MNCs and Domestic Companies

• Tax Rates:
  • Unchanged Corporate Tax Rates: The budget maintains existing corporate tax rates for both foreign and Indian companies.
  • For domestic companies not opting for the concessional tax regime, the corporate tax rate remains at 25% (effective tax rate of 29.12%) for those with a total turnover not exceeding ₹400 crores during FY 2023-24 and 30% (effective tax rate of 34.94%) for companies exceeding this turnover.
• Incentives and Deductions:
  • Extension for Startups: The eligibility period for startups to avail of a 100% profit deduction has been extended.
  • Startups incorporated until April 1, 2030, can claim this deduction for any three consecutive years within their first ten years of operation.

• Implications for MNCs and Domestic Companies:
  • Strategic Planning: While tax rates remain unchanged, companies must assess the impact of extended incentives on their financial planning and investment strategies.
  • Operational Considerations: MNCs and domestic firms should evaluate the benefits of incorporating eligible startups within their corporate structures to leverage tax deductions.
     
• Ease of Doing Business: Amendments to Company Law and Regulatory Frameworks
  • Regulatory Reforms:
    • High-Level Committee for Regulatory Reforms: The government has announced the formation of a High-Level Committee tasked with reviewing all non-financial sector regulations, certifications, licenses, and permissions. This initiative aims to streamline processes, reduce bureaucratic hurdles, and enhance the ease of doing business in India.
       
  • Simplified Tax Code:
    • Introduction of a New Income Tax Bill: A new, simplified income tax bill is set to be introduced, aiming to increase tax certainty, reduce litigation, and promote good governance. The proposed legislation is expected to be more concise, approximately half the length of the current law.}
       
  • Impact on Businesses:
    • Reduced Compliance Burden: Streamlined regulations and a simplified tax code are anticipated to lessen the administrative load on companies, allowing them to focus more on core business activities.
    • Enhanced Investment Climate: These reforms are designed to create a more transparent and predictable business environment, potentially attracting increased foreign and domestic investments.
       
• Public-Private Partnerships (PPPs): Legal Aspects of Investment Agreements
  • Promotion of PPPs:
    • Infrastructure Development: The budget emphasises the role of PPPs in infrastructure growth, including sectors like renewable energy and nuclear power. The government plans to amend strict liability laws to facilitate private and foreign investment in nuclear energy projects, aiming to expand nuclear capacity to 100 GW in two decades.
    • E-Commerce Export Hubs: To support MSMEs and traditional artisans in accessing international markets, the government proposes establishing 50 e-commerce export hubs in PPP mode. These hubs will operate under a seamless regulatory and logistic framework, offering trade and export-related services under one roof.
       
  • Legal Considerations:
    • Contractual Frameworks: Investment agreements within PPPs must clearly define roles, responsibilities, risk-sharing mechanisms, and dispute-resolution processes to ensure successful collaboration between public and private entities.
    • Regulatory Compliance: Private partners need to navigate and comply with sector-specific regulations, which may involve adapting to amended laws designed to encourage private investment.

These initiatives reflect the government's commitment to fostering a conducive business environment, promoting investment, and accelerating economic growth through collaborative efforts between the public and private sectors.
Economic Growth and Legal Framework
GDP Growth and Fiscal Laws: Taxation Policies and Budgetary Compliance

• Taxation Policies:
  • Income Tax Reforms: The budget introduces significant changes to personal income tax, notably removing tax liability for individuals earning up to ₹12 lakh annually under the new tax regime. This move aims to increase disposable income, stimulate consumer spending, and thereby boost economic growth.
  • Corporate Tax Stability: Corporate tax rates have been maintained at existing levels, providing stability for businesses. This consistency is intended to foster a predictable business environment, encouraging both domestic and foreign investments.
• Budgetary Compliance:
  • Capital Expenditure Focus: The government has earmarked ₹11.21 lakh crore for capital expenditure, constituting 3.1% of GDP. This allocation underscores a commitment to infrastructure development, which is expected to have a multiplier effect on GDP growth.
  • Revenue Projections: Net tax receipts are projected at ₹28.37 lakh crore, reflecting an 11% increase over the previous fiscal year's revised estimates. This optimistic projection is based on anticipated economic growth and improved tax compliance.
• Fiscal Deficit: Constitutional Provisions and Legal Concerns
  • Fiscal Deficit Target:
    • Current Estimate: The fiscal deficit for FY 2025-26 is estimated at 4.4% of GDP. This figure represents the gap between the government's total expenditure and its total receipts (excluding borrowings).
  • Constitutional and Legal Framework:
    • Fiscal Responsibility and Budget Management (FRBM) Act: This act provides a legal framework for the government to ensure fiscal discipline. The current fiscal deficit target aligns with the FRBM Act's medium-term goals, aiming to reduce the deficit to sustainable levels.
    • Market Borrowings: To finance the deficit, the government plans gross market borrowings of ₹14.82 lakh crore. While this is a substantial amount, it is within the permissible limits set by the FRBM Act, ensuring adherence to constitutional provisions.
• Legal Measures to Control Inflation: Government Strategies and Their Legal Feasibility
  • Current Inflation Scenario:
    • Inflation Rates: The Economic Survey preceding the budget reported an overall inflation rate of 5.2%, with food price inflation at approximately 8%. These figures highlight the need for effective inflation control measures.
  • Government Strategies:
    • Monetary Policy Adjustments: The Reserve Bank of India (RBI) has proactively cut interest rates to stimulate economic activity. The new central bank chief, Sanjay Malhotra, has adopted a growth-supportive stance, balancing the need for economic stimulation with inflation control.
    • Supply-Side Interventions: The government is focusing on structural reforms, such as improving supply chains and reducing bottlenecks, to address the root causes of inflation. These measures are designed to enhance productivity and reduce costs, thereby exerting downward pressure on prices.

Legal Feasibility:
Monetary Policy Framework Agreement (MPFA): The RBI operates under the MPFA, which mandates an inflation-targeting approach. The current measures, including interest rate adjustments, are within the legal ambit of the RBI's mandate to control inflation[11].

Legislative Support for Reforms: Supply-side interventions often require legislative changes to address structural issues. The government's commitment to these reforms indicates a willingness to pursue necessary legal avenues to implement effective inflation control measures.

In summary, the Union Budget 2025-26 reflects a comprehensive approach, integrating fiscal policies and legal measures to foster economic growth, maintain fiscal discipline, and control inflation. The government's strategies are designed to be legally sound, ensuring compliance with constitutional provisions and existing legal frameworks.

Conclusion & Impact
Legal and Economic Interplay: Alignment of Budgetary Provisions with Constitutional and Financial Laws

• Taxation Reforms:
  • Introduction of a New Income Tax Bill: The government plans to replace the decades-old income tax law with a new bill aimed at simplifying tax compliance and reducing litigation. This initiative seeks to align the tax framework with contemporary economic realities and constitutional mandates.
• Fiscal Responsibility:
  • Adherence to FRBM Act: The fiscal deficit for 2025-26 is projected at 4.4% of GDP, reflecting the government's commitment to fiscal discipline as outlined in the Fiscal Responsibility and Budget Management (FRBM) Act. This alignment ensures that budgetary provisions comply with constitutional and financial laws governing fiscal prudence.
• Business Compliance: Regulatory Impact on Corporate and Financial Sectors
  • Regulatory Reforms:
    • High-Level Committee for Regulatory Reforms: A committee has been established to review non-financial sector regulations, certifications, licenses, and permissions. This initiative aims to reduce compliance burdens and enhance the ease of doing business, thereby fostering a more conducive environment for corporate operations.
  • Tax Compliance Simplification:
    • Transfer Pricing Adjustments: The budget proposes that the arm's length price determined for an international or specified domestic transaction shall apply to similar transactions for a total period of three years. This measure is expected to simplify tax compliance for businesses engaged in cross-border transactions and reduce repetitive audits.
• Sustainability and Legal Enforcement: Ensuring Long-Term Legal and Economic Stability
  • Energy Sector Initiatives:
    • Nuclear Energy Expansion: The government plans to amend strict liability laws to attract private and foreign investment in the nuclear energy sector, aiming to expand nuclear capacity to 100 GW over the next two decades. This move is designed to enhance energy security and contribute to sustainable economic growth.
  • Environmental Commitments:
    • Green Energy Investments: The budget allocates funds for clean energy expansion, laying the groundwork for a sustainable energy future. However, it has been noted that a unified strategy is required to drive a comprehensive sustainability transformation.

These measures reflect the government's integrated approach to aligning economic policies with legal frameworks, simplifying business compliance, and promoting sustainability to ensure long-term economic stability.

End Notes:

• Mohammed S Chokhawala, Income Tax Bill 2025: PDF DOWNLOAD, CHAPTERS, OBJECTIVES, FEATURES AND PROVISIONS (Feb 17th, 2025, 8:30 AM), https://r.search.yahoo.com/_ylt=AwrPrmf7OrhnLQIAmJC7HAx.
• Mohammed S Chokhawala, Income Tax Slab for FY 2024-25 (AY 2025-26) – New & Old Regime Tax Rates (Feb 20th, 2025, 10:30 A.M), https://r.search.yahoo.com/_ylt=AwrKDpMkQLhnOQIAt967HAx.
• Sachin Gupta, Union Budget 2025: FM Allocated 11.21 lakh crore for capital expenditure, (Feb 1st, 2025, 4:48 P.M), https://r.search.yahoo.com/_ylt=AwrKANU7QbhnOQIAd7.7HAx.
• CA Anita Bhadra, Nil Tax Up to Rs.12 Lakhs Income (FY 2025-26); Tax Computation with Illustration & FAQs, (Feb 11th 2025, 4:30), https://r.search.yahoo.com/_ylt=Awr1SlJeQ7hn9QEAT5y7HAx.
• Ashmita Ravi Shankar, New income tax slabs: Nirmala Sitharaman made a historic announcement that there will be no income tax payable for those with an income upto ₹12 lakh, (Feb 2nd 2025, 6:58 AM), https://www.hindustantimes.com/india-news/new-income-tax-slabs-union-budget-2025-check-full-details-101738392179471.html
• Pawan Kumar Chaudhary, Summary of Impact on TDS/ TCS in Budget Proposals of 2024-25, (Jul 27th 2024, 7:30), https://taxguru.in/income-tax/summary-impact-tds-tcs-budget-proposals-2024-25.html
• CA Pravin Kumar Jain, Analysis of Changes Proposed in TDS/TCS Provision in Budget – 2025, (Feb 6th 2025, 3:49), https://r.search.yahoo.com/
• https://r.search.yahoo.com/_ylt=Awr1Skfm_b5nBgIAEAC7HAx.
• https://r.search.yahoo.com/_ylt=Awrx.eYG_75nzFACsoy7HAx.;_ylu
• https://vajiramandravi.com/upsc-daily-current-affairs/mains-articles/debt-gdp-ratio-india/
• https://prepp.in/news/e-492-monetary-policy-framework-agreement-indian-economy-notes