India Aims for a Lower Budget Deficit and Offers Middle-Class Tax Relief to Promote Growth

India has implemented middle-class tax breaks in an effort to boost economic development and lower the budget deficit.

During the presentation of the annual budget on Saturday, Finance Minister Nirmala Sitharaman declared that India will reduce personal income tax rates in order to increase the purchasing power of the middle class. Additionally, the budget seeks to boost private investment in order to bolster economic expansion.

Next year, the fifth-largest economy in the world is expected to develop at its weakest rate in four years due to a combination of poor private investment and weak urban demand. Disposable incomes have also been affected by consistently rising food inflation.

The 2025–2026 budget, according to Sitharaman, features “transformative reforms in taxation” as well as initiatives to help women, farmers, the impoverished, and young people. Individuals making up to 1.28 million rupees ($14,800) a year would no longer be subject to taxes under the new laws; formerly, this threshold was 700,000 rupees. 

Those who earn more than this have also had their tax rates lowered; the actions are anticipated to result in tax receipts of about 1 trillion rupees.

The government is still working to strengthen its finances in spite of the tax breaks, and it has lowered its goal budget deficit from the current year’s revised 4.8% to 4.4% of GDP for 2025–2026. The government intends to borrow $141 billion, or 14.82 trillion rupees, from the bond market to cover this deficit.

The government has suggested a small increase in capital investment to make up for the income loss. The current year’s revised 10.18 trillion rupees would climb to 11.21 trillion rupees in 2025-26.