Budget 2025: FM Justifies Income Tax Relief, Assures Economic Gains Will Follow

The Finance Ministry defended its decision to provide income tax relief in the 2025 Budget, explaining that the economic impact of the move has already begun, even before the formal implementation of the new tax structure from April 1.

Speaking at a post-budget conference, a senior Finance Ministry official, responding on behalf of the Finance Minister, addressed concerns raised by The Hindu regarding the estimated revenue loss of approximately Rs. 1 lakh crore and its effect on the tax-to-GDP ratio, which remains steady at around 10%.

When asked about how quickly the government expects revenue recovery following the tax cuts, the official explained that economic effects are already in motion due to "expectations." He pointed out that individuals and businesses, anticipating tax savings, often adjust their economic decisions even before the formal enactment of the policy.

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“From the very first month of implementation—April—salaried individuals and businesses will experience a direct impact. With lower tax deducted at source (TDS) and reduced advance tax obligations, more money will be available in the hands of taxpayers, leading to increased consumption and investment,” the official stated.

When asked whether a broader income relief targeting individuals earning below the per capita income level would have yielded better economic results due to their higher propensity to consume, the official acknowledged the debate but stressed that household financial behavior varies.

“There are multiple ways in which financial relief can be utilized—not just through consumption, but also through household savings and investments. The question isn’t just about spending, but also about ensuring that those who contribute to the economy feel recognized and motivated,” he argued.

Despite concerns that tax relief primarily benefits only about 3% of the population, the Finance Ministry repeated that this move is designed to reward taxpayers and encourage reinvestment into the economy. The government believes that empowering middle and high-income taxpayers will lead to a broader economic stimulus through increased investments and household spending.

Critics argue that direct relief to lower-income groups could have had a more immediate effect on demand but the ministry maintains that this tax policy is an important step toward long-term fiscal stability and economic growth.

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