Tax cuts are a one-way bet.

• The middle class in India has received a significant tax cut in the 2025 Budget, benefiting a small minority.

• The tax rebate is applicable to those earning between ₹7-₹12 lakh a year, and for those earning more than ₹12 lakh, the exemption limit has increased from ₹3 to ₹4 lakh.

• The rest of the tax slabs have also changed favorably, along with a cut in the marginal tax rates.

• This cut is expected to lead to a fall in tax revenue to the tune of ₹1 lakh crore, 8% of the direct income tax collection of ₹12.57 lakh crore in the current year.

• The budget has estimated direct tax collection to go up by 14%, requiring a rise in income of around 24%.

• The optimistic scenario suggests a significant rise in the number of people earning more than ₹12 lakh and/or a significant rise in the income of current taxpayers, indicating higher tax buoyancy.

• The Finance Minister has announced an even lower deficit target this Budget, down from 4.8% (RE 2024) to 4.4% (BE 2025), reflecting fiscal contraction-shaped growth.

• The pessimistic scenario suggests that if the tax buoyancy does not work out, the implications will fall on the poor and disadvantaged of the country.

Government’s Fiscal Management and Fiscal Consolidation

• The government revised its deficit target from 5% in 2024 to 4.8% in 2025, despite concerns about a four-year low in economic growth.

• The fall in deficit was managed through a nearly all-encompassing cut in expenditures compared to the figures announced in 2024.

• The government fell short of its 2024 promises in terms of commitments, with a fall of ₹1 lakh crore in total expenditure.

• The government’s commitment to fiscal consolidation is evident in the cuts across most flagship schemes.

• The Finance Minister announced an even lower deficit target this Budget, down from 4.8% (RE 2024) to 4.4% (BE 2025), indicating fiscal contraction.

• The government is banking on exports and corporate investment to bring about a turnaround in growth, despite the lack of global demand.

• The government’s strategy is seen as a one-way gamble, with the expectation that income tax cuts would increase consumption demand, requiring an increase in investment.