With a rejig of Income Tax slabs, the expectation is that the money saved will flow back into the economy through consumption, savings or investment, Union Finance Minister Nirmala Sitharaman said in an interview with Doordarshan. She also spoke about the benefits of the New Tax Regime and the government’s capex plans. Edited excerpts:
The new Income Tax Bill will come next week. Will that be in the form of a draft and will you take stakeholder comments on it?
Any Bill goes to the standing committee, after which we will consult with stakeholders. It will then return to us, and if necessary, further amendments will be made before moving it forward to the House.
Is there a specific reason for increasing the income tax rebate from Rs 7 lakh to Rs 12 lakh? Was it because incomes and salaries were not growing as expected, prompting the government to introduce this rebate? Additionally, how will you compensate for the Rs 1-trillion revenue loss? Won’t this impact budget estimates? Where will the funds come from?
Income has to grow to a certain level before a discussion about tax becomes relevant. Now, why increase the threshold from Rs 7 lakh to Rs 12 lakh? It was earlier Rs 2.2 lakh, then in 2014, it became Rs 2.5 lakh. In 2019, it was raised to Rs 5 lakh, then to Rs 7 lakh, and now to Rs 12 lakh. The government feels that if someone earns Rs 1 lakh per month on average, they should not have to pay tax.
We are doing this in two ways: One, we are reducing slab rates — the tax slabs are now more uniform, with a gradual progression. Two, we are expanding tax slabs — this benefits all taxpayers, as the revised slabs provide relief across income groups.
Additionally, the Finance Ministry decided that some people should receive extra benefits beyond mere slab rate reductions. Hence, an extra rebate was introduced. Slab rate reductions apply to everyone, and extra rebate for some more people. Why do this? The expectation is that the money saved by taxpayers will flow back into the economy through consumption, savings, or investment.
If you compare what we have done today with what prevailed in 2014 under the Congress government, the narrative has always been about putting money back into the hands of the people. Compared to the 2014 tax rates under Congress, someone earning Rs 8 lakh now has nearly Rs 1 lakh more in their pocket. In 2014, the tax was Rs 1 lakh; now, it is zero. Moreover, someone earning Rs 12 lakh had to pay Rs 2 lakh in 2014; now, it is zero. That means Rs 2 lakh more in their pocket. Moreover, rates for everyone are being brought down. As a result, someone earning Rs 24 lakh, who had to pay Rs 5.6 lakh in 2014; now only have to pay Rs 3 lakh. That means Rs 2.6 lakh more in their pocket. So, it’s not just those earning up to Rs 12 lakh who benefit—because they are not paying any tax at all due to the rebate—but even those earning more see benefits.
On income tax — since the process has been simplified, does this mean that future relief for taxpayers could be provided through a scheduled or executive order rather than waiting for a full-fledged income tax bill?
Any time relief is given, it will have to go through the Parliament. If we are providing fiscal relief, it requires approval. Tax simplification primarily addresses complexity of language, the circuitous way provisions were explained, and the excessive exemptions. When we introduced the new tax regime, we deliberately avoided replicating the old one, which included several exemptions. We wanted a simple, straightforward tax regime where rates could be lowered. That is exactly what we have done now. The act itself needed simplification, and that is our attempt.
Disinvestment was not mentioned in the last Budget or this one, though the target remains. Is there any renewed push toward what was previously announced, such as the privatisation of banks?
We have a value creation strategy. There is no disinvestment target per se. Disinvestment and dividends are considered together, as both involve money, and money is fungible. This strategy has five elements. First, performance of central public sector enterprises (CPSEs). Second, effective communication of that performance. Third, the capital expenditure of CPSEs, which is crucial for accelerating growth. Fourth, a consistent dividend policy. Fifth, a calibrated disinvestment strategy, where listing is also a part of disinvestment. Overall, both dividends and disinvestment raise about Rs 80,000 to Rs 90,000 crore per year in a manner that benefits minority shareholders.
How many people will benefit from the rebate increase from Rs 7 lakh to Rs 12 lakh? Additionally, while the absolute capex figure has risen, many argue that the pace of spending has slowed compared to previous years. Does this indicate a limit to the government’s institutional capacity for driving a capex push? Lastly, some analysts suggest that the economic multiplier effect of capex is significantly higher than that of tax cuts. How would you respond to these concerns?
One crore more people will pay no tax. On capex, two factors are at play. First, this year had the elections taking place and because of that, both central and state governments were catching up with investments only in the second and third quarters. So it showed. It’s not as if there is no thirst for capital expenditure, but now it will be at a pace at which you can build on each one of the developments that you’ve done prior. So it will continue. Some departments may require more funds, while others may reach a plateau, but spending will continue across sectors, ensuring investment in asset creation.
How is capex continuing despite revenue and consumption expenditure, and what is its impact on GDP?
Capex is also continuing. I’ve not foregone capex to give for revenue expenditure or consumption expenditure, so both continue. Look at what the overall numbers are. Even in the coming year, effective capital expenditure, including what Government of India provides states for their capital expenditure, is 4.3% of the GDP, one of the highest. It’s not just what the Government of India’s departments spend, it is the total money that goes for capital expenditure. If you look at that compared to this year’s RE, there will be a 20% increase. It is not a capacity issue, it is new sectors coming up, for example the urban sector, their locations are increasing. There’s one area that requires renewed focus.
So one is the capex that we give directly. The other is that grants that we give to state governments, for the state governments to do capex, for example, Pradhan Mantri Gram Sadak Yojana, Pradhan Mantri Awas Yojana etc. So if you also include the grants in aid for creation of capital assets, the amount, the total amount has gone up to Rs 15.48 crore in the budget estimate for next year, which is more than 15% increase over the current year’s RE, so that is a substantial increase. Whereas, if you consider that the overall expenditure, that is revenue plus capital, has grown by 7% in the next financial year as compared to this year’s RE, so this is almost twice the aggregate growth in the expenditure. I would like to also add that on top of this Rs 15 trillion capex, the CPSEs add about Rs 4 trillion capex from their own resources. So that’s also the capex which goes in. And that is not counted here.
The FDI limit for insurance has been increased from 74% to 100%. Have other recommendations in the Insurance Amendment Bill been rejected?
Fundamentally, whether it’s 74% or 100% doesn’t matter. What matters is the psychological feeling that they can own the company 100%. Along with this, we are also going to simplify certain procedures and rules that we frame, which includes key management personnel, person who can be chairman of the company, and persons who can be the CEO and board of directors, and also the repatriation of dividends. The draft insurance Bill is the one that has been announced.
Could you provide some broader aspects of the comprehensive asset monetisation plan in detail?
Until last year, the first programme that was launched in 2021, achievements have been of the order of 90%, which is good progress. Based on that success is our next leap, almost double the amount. Newer asset classes are also coming up. For example, transmission assets, and not just of the Government of India, but also state government assets. An entire plan will be out soon.
Considering the government’s measure to put in more money into the hands of the public, are you trying to mitigate the impact of a possible Trump-led tariff trade war with the US? Are you relying more on domestic production to ensure Indians have a shield from the US trade wars if they happen?
Well, I don’t think we’ve gone that far to justify the income tax rate reduction. We’ve responded to the voice of the people, made our own assessments and therefore, we’ve given this. There was an allegation also that we didn’t respond to what may come through the US administration’s tariff decisions. I don’t think these two are connected so no, we haven’t done it with that intent.
Kisan Credit Card limit has been enhanced to Rs 5 lakh. Any assessment on how this will boost rural consumption?
This is to enable those farmers who are doing commercial cropping, they require more crop loans, it will facilitate them. It is to assist the farmer, not a measure to boost rural consumption. The intent is to facilitate farmers to get crop loans.
How many taxpayers have moved to the New Income Tax regime and does this mean we are phasing out the Old Tax Regime?
75% have already moved to the New Tax Regime under the individual category.
The Old Tax regime is available but we expect almost everyone to shift now. However, if we were phasing out the old scheme, I would have said so.
MGNREGA has seen stagnant allocation in the last two years, despite FY25’s utilisation having peaked till December. Do you expect a mid-year revision?
MNREGA is a demand-driven programme. If as a result of an increase in demand, a state wants money, the RE shows the numbers and we increase it. But just because of that doesn’t mean that the BE will have to be on the enhanced note. Every year, post the crop season, the numbers vary. As a demand-driven programme, we will certainly respond to it as and when the numbers come.
Source from: https://indianexpress.com/article/business/budget/union-budget-2025-26-nirmala-sitharamans-interview-tax-cut-9812585/
