Union Budget 25: How it can affect consumer behavior & your pocket

The upcoming Union Budget 2025, set to be presented by Finance Minister Nirmala Sitharaman on February 1, is generating significant interest, particularly regarding its potential impact on income tax for individual taxpayers. With rising living costs and economic pressures, many are hopeful for measures that will provide relief and enhance disposable income.

 

The budget plays a crucial role in influencing the economy, particularly through its effects on prices and incomes. By adjusting taxes, duties, and subsidies, the budget can make certain goods and services more expensive or cheaper, which in turn affects consumer behaviour and overall economic conditions.

 

Let us understand how the budget makes things expensive and cheaper and how it impacts incomes.

 

Impact on prices

 

Things become more expensive when:

 

Direct tax increases on goods and services, like higher GST rates or customs duties, directly raise the cost to consumers. For instance: in the 2024 Union Budget, customs duties on non-biodegradable plastics were increased to 25 per cent, making related products pricier.

 

Higher input costs caused by increased taxes on raw materials inflate the production cost, transferring the burden to end-users.

 

Reduced subsidies on critical items like fuel or fertilisers make them costlier, with a ripple effect on transportation and agriculture.

 

Higher compliance costs, such as stricter environmental or safety regulations, increase operational expenses for businesses, which are often passed on to consumers.

 

Things become cheaper when:

 

Tax cuts or exemptions reduce the price of targeted goods or services.

 

For instance, the budget reduced customs duties on gold and silver from 15 per cent to 6 per cent, resulting in a significant drop in gold prices from Rs 74,000 to around Rs 70,000 per 10 grams after the announcement.

 

Enhanced subsidies lower costs for essential goods, directly benefiting consumers.

 

Reduction in import duties makes foreign goods more affordable, increasing competition and lowering prices.

 

Business incentives like tax holidays or production-linked incentives help companies cut costs, potentially reflecting lower prices for consumers.

 

Impact on incomes

 

Direct effects:

 

Income tax changes— alterations in slabs or rates immediately impact take-home pay.

 

Tax deduction/exemption revisions influence disposable income and savings.

 

Capital gains tax adjustments affect returns from investments like stocks, real estate, and bonds.

 

Professional tax or surcharges affect net earnings, especially in higher-income brackets.

 

Indirect effects

 

Government infrastructure spending creates jobs and drives income growth in construction and allied sectors.

 

Interest rate changes influence borrowing costs (EMIs) and returns on savings, impacting disposable income.

 

Sector-specific incentives can boost wages and employment in targeted industries.

 

Social welfare schemes provide additional income or support to vulnerable populations.

 

Budget 2025 expectations

 

“We expect sweeping strides in personal income tax changes in the Tax budget of 2025. The authorities may shift the benchmark exemption limit for the old regime from Rs 3 lakh to Rs 5 lakh in a bid to make it more compatible with the new. There further seems to be optimism towards optimisation of slabs especially in the regimes above between 15-30 per cent so as to effectively improve disposable income and spending. For urban lower middle-class taxpayers, the financial recommendation of enhancing Section 80C limit repayment from its existing Rs 1.5 lakh to Rs 2.5 lakh seems inevitable,” said Siddharth Maurya, founder & managing director of Vibhavangal Anukulakara Private Limited.

 

“Policy measures such as tax incentives for digital gold SIPs and streamlined gold leasing guidelines will empower individuals, enhance financial inclusion, and channelise gold’s immense potential to drive economic prosperity,” said Amol Bansal, Founder, MyGold.

 

“In the context of the Default (New) Tax Regime, introducing deductions related to housing loans— covering both interest payments and principal repayments— could be a significant step forward. Special benefits for first-time homebuyers would align with the government’s goal of promoting housing for all and ensuring greater disposable income for taxpayers,” said Harsh Bhuta, partner, Bhuta Shah & Co.