Union Budget 2025: Where does the rupee come from and where does it go?

Union Budget 2025: This Budget reflects a move towards fiscal consolidation, with lower reliance on borrowings and higher revenue from direct taxes

Finance Minister Nirmala Sitharaman presented the Union Budget for the financial year 2025-26, marking her eighth consecutive Budget. One of the most significant announcements was the overhaul of the new tax regime, introducing a zero-income tax slab for earnings up to ₹12 lakh annually. This change is expected to ease the tax burden on a large section of the population, particularly salaried individuals, and encourage higher savings, consumption, and investments.

 

Under the revamped structure, taxpayers with annual earnings up to ₹12 lakh will not have to pay any income tax. Additionally, salaried individuals will benefit from a total exemption of ₹12.75 lakh, factoring in a standard deduction of ₹75,000. This move is anticipated to have a positive impact on household incomes, boosting overall economic activity.

 

The Budget also provides insights into how the government generates revenue and allocates its funds.

 

Budget 2025: Where does the rupee come from?

The government’s major sources of revenue include borrowing and other liabilities (24 per cent), income tax (22 per cent), GST and other indirect taxes (18 per cent), and corporate tax (17 per cent). Other sources such as non-tax receipts, excise duties, customs, and non-debt capital receipts make up the remaining share.

 

Budget 2025: Where does the rupee go?

On the expenditure side, a significant portion of the government’s funds is allocated towards states’ share of taxes and duties (22 per cent) and interest payments (20 per cent). Spending on central sector schemes, defence, finance commission transfers, centrally sponsored schemes, and subsidies also form major components of the Budget. Pension payments and other expenditures take up the rest of the allocation.

 

How is it different from last year's Budget?

Last year’s Budget saw a higher reliance on borrowings and other liabilities, which accounted for 27 per cent of the revenue. The share of income tax was slightly lower at 19 per cent, while GST stood at 18 per cent, the same as this year. Corporate tax contributed 17 per cent, maintaining its share, while non-tax receipts made up 9 per cent. Excise duties and customs remained at 5 per cent and 4 per cent, respectively, while non-debt capital receipts stood at 1 per cent, similar to this year.

 

On the spending side, states’ share of tax duties was slightly lower at 21 per cent last year, while interest payments stood at 19 per cent. Central sector schemes accounted for 16 per cent, the same as this year, while finance commission transfers and other expenditures made up 9 per cent each. Centrally sponsored schemes and defence spending remained steady at 8 per cent, while subsidies and pensions accounted for 6 per cent and 4 per cent, respectively.

 

What does this mean?

The key differences between Budget 2024 and Budget 2025 lie in a reduced reliance on borrowings and an increased contribution from income tax. On the expenditure front, states' share of taxes has increased, while interest payments remain high, reflecting the government’s debt commitments. These shifts indicate a move towards better fiscal discipline while maintaining critical allocations for welfare, infrastructure, and defence.