Introduction

Every year, the Union Budget of India serves as a critical policy instrument that shapes the country’s fiscal landscape. It outlines the government’s revenue and expenditure plans for the upcoming financial year and lays the foundation for legal, economic, and social reforms. 

A core component of the budget is taxation policy, which affects both direct and indirect taxes. This blog critically analyses how the latest Union Budget impacts the Indian tax system, with an emphasis on legal provisions and economic implications.

Keywords: Union Budget definition, components of Union Budget, direct tax, indirect tax, GST, income tax slab, startup tax benefits, merits and demerits of indirect taxes, Indian Budget 2025, Income Tax Act, CGST Act.

Union Budget: Definition and Constitutional Basis

The Union Budget, formally referred to as the Annual Financial Statement, and is mandated under Article 112 of the Constitution of India. It is presented by the Finance Minister before the Parliament of India, typically on February 1 each year, and becomes effective from 1 April.

Union Budget Definition

A comprehensive financial statement estimating government revenue and expenditure for a financial year, it is a tool for economic planning and legal reform.

Components of the Union Budget

The Union Budget comprises two fundamental parts:

1. Revenue Budget.
2. Capital Budget

Let us first talk about the revenue budget.

Revenue Budget

The revenue budget includes:

• Tax revenues (such as income tax, corporate tax, GST, and customs duties)
• Non-tax revenues (like dividends from PSUs, interest receipts)

Revenue expenditure refers to routine expenses such as:

• Subsidies
• Defence salaries
• Interest payments
• Salaries and Wages

Now let us talk about the capital budget.

Capital Budget

The capital budget encompasses:

Capital receipts (like loans, disinvestment proceeds)

• Capital expenditures (such as infrastructure development and long-term investment in public enterprises)

These components directly influence the formulation and revision of tax laws and regulations in India.

Impact on Direct Taxation

Direct taxes, governed primarily by the Income Tax Act, of 1961, are imposed directly on the income or wealth of individuals and corporations.

Key Budget Provisions

1. Revised Tax Slabs under the New Regime
2. Support for Startups and MSMEs
3. Digital Transformation in Tax Compliance
4. Stable Corporate Tax Rates
5. Relief Measures for Senior Citizens

Revised Tax Slabs under the New Regime

• Increase the basic exemption limit and streamline income tax slabs to promote voluntary compliance.
• Encourages taxpayers to opt for the new regime under Section 115BAC of the Income Tax Act.

Support for Startups and MSMEs

• Extension of tax holiday under Section 80-IAC for eligible startups.
• Enhanced thresholds for presumptive taxation schemes under Section 44AD and Section 44ADA.

Digital Transformation in Tax Compliance

• Expansion of faceless assessment schemes and AI-based scrutiny mechanisms.
• Promotion of e-verification and real-time reporting.

Stable Corporate Tax Rates

• No increase in corporate tax, retaining earlier reduced rates under Section 115BAA and 115BAB, thereby supporting industrial growth.

Relief Measures for Senior Citizens

• Simplification in compliance for senior citizens aged 75 years and above

Impact on Indirect Taxation

Indirect taxes are taxes collected by intermediaries from the ultimate consumer, such as Goods and Services Tax (GST), customs duties, and excise duties.

Key Changes in the Budget:

1. Customs Duty Rationalization
2. Excise Duty on Sin Goods
3. Reforms in GST Administration
4. Focus on Logistics and Infrastructure

Customs Duty Rationalization

• Reduction in import duties on capital goods and raw materials to boost domestic manufacturing under the Make in India initiative.
• Higher duties on luxury and non-essential imports to curb trade deficits.

Excise Duty on Sin Goods

• Increased excise duty on tobacco and alcoholic beverages, aligning with public health goals and revenue generation.

Reforms in GST Administration

• The Budget supports GST Council initiatives on simplified return filing, reduced litigation, and digital integration.
• Encouragement for small businesses to register under the Composition Scheme (Section 10 of CGST Act).

Focus on Logistics and Infrastructure

• Reduced customs duty on machinery used in infrastructure sectors, thus impacting the input cost and pricing of goods indirectly taxed under GST.

Merits and Demerits of Indirect Taxes

Understanding the broader implications of indirect taxes is essential for assessing the Union Budget’s effectiveness.

Merits of Indirect Taxes

1. Ease of Collection: Collected at the point of sale, reducing evasion.
2. Broad Base: Everyone contributes, thereby expanding the tax net.
3. Discouragement of Harmful Goods: Higher rates on sin goods serve the public welfare.
4. Inflation Control: Can be adjusted based on economic needs.
5. Promotes Voluntary Compliance: indirect taxes like GST are embedded in the price of goods and services

Demerits of Indirect Taxes

1. Regressive Nature: Poor and rich pay the same tax on consumption, burdening the lower-income groups disproportionately.
2. Cascading Effect: Although minimized post-GST, issues persist in certain sectors.
3. Complex Compliance for Businesses: Especially for small traders lacking digital infrastructure.
4. Lack of Transparency: Consumers often remain unaware of how much tax they pay.

Conclusion

The latest Union Budget reflects a cautious yet strategic approach to taxation. While direct tax reforms focus on easing individual burdens and promoting entrepreneurship, indirect tax policies aim to strengthen the domestic manufacturing sector, ensure fairness in consumption taxes, and streamline compliance mechanisms.

For legal professionals, policy analysts, and law students, understanding the components of the Union Budget and how they reshape India’s tax regime is indispensable. As the economy evolves, the legal framework surrounding taxation law must remain adaptable, inclusive, and technology-driven.

References

• Income Tax Act, 1961

• Goods and Services Tax Acts

• Constitution of India – Article 112

• Union Budget Portal

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By – Adeeb Akhtar ( Maharashtra National Law University, Chhatrapati Sambhajinagar – 3rd year )