Tax Cuts, Wage Hike: What Middle Class Expects From Today’s Budget?

Tax Cuts, Wage Hike: What Middle Class Expects From Today’s Budget?

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Union Budget 2025: People are eagerly waiting for a solution to their some of their biggest issues such as price hike of essential commodities and high taxes in the Union Budget to be tabled soon

Budget 2025: Union Finance Minister Nirmala Sitharaman. (File photo)

India Budget 2025 Expectations: Finance Minister Nirmala Sitharaman is going to present her eighth consecutive budget shortly today (Saturday, February 1). The public hopes the budget will include steps to boost slowing economic growth and ease the strain on the middle class dealing with high costs and stagnant wages while maintaining fiscal discipline.

In their pre-budget speeches on Friday both Prime Minister Narendra Modi and President Droupadi Murmu have acknowledged the sacrifices made by the middle class and hinted at the reduction of taxes, getting their hopes up.

Speaking to the media outside Parliament, Prime Minister Modi expressed, “I pray to Goddess Lakshmi to bless the poor and middle class. It fills me with great pride that India has completed 75 years as a democratic nation.”

He further stated, “Innovation, inclusion, and investment will form the foundation of India’s economic roadmap.”

His comments, particularly highlighting the middle class and the poor, have sparked expectations that the government may introduce measures aimed at providing economic relief, tax benefits, and women-focused initiatives.

President Murmu, too, highlighted the Centre’s commitment to boosting the economy, providing relief to the commoners, and aiding the health, defence and business sectors.

During last year’s Budget speech, Finance Minister Nirmala Sitharaman announced that the legal aspects of income tax will undergo a comprehensive review. This would be done to make the law easier to read and understand.

The proposed review was announced on July 23, after the BJP-led government began a historic third term, and was scheduled to be completed in six months. The period ended on Thursday (January 23), which means we can expect the revamped legislation with newer provisions in today’s budget.

Meanwhile, salaried employees are expecting FM Nirmala Sitharaman to make an annual income of up to Rs 10 lakh tax-free in the new tax regime. At present, a tax rebate under Section 87A is available on an annual income of up to Rs 7 lakh under the new tax regime and up to Rs 5 lakh under the old regime.

Here are five important concerns of the common man that require Nirmala Sitharaman’s attention.

Inflation

Households across the country have been spending more on everyday essentials, with prices for vegetables, cooking oil, and milk rising. Vegetable prices were impacted by extreme weather, while cooking oil prices surged after the government raised duties. Milk prices increased due to higher input costs. However, the recent Re 1 per litre milk price cut announced by cooperatives like Amul on January 25 will offer some relief to consumers.

Additionally, household budgets have been strained by rising prices of packaged food items like biscuits and toiletries, many of which use palm oil in production. Companies have already warned of further price hikes due to escalating costs. Lowering import duties on edible oils could help reduce the MRP of these products and ease input costs for FMCG companies.

Slow Rise in Wages

The sluggish growth in wages and salaries for workers, as well as junior- to mid-level executives, has contributed to a dip in consumption in recent months. According to Britannia’s second-quarter earnings call, wages for non-salaried workers, who make up over half the workforce in urban areas, grew by only 3.4%, compared to 6.5% for salaried workers in the past year. A report by industry body Ficci and staffing company Quess Corp found that between 2019 and 2023, wages in sectors like engineering, manufacturing, and infrastructure grew at just 0.8% annually, while wages in the FMCG industry increased by 5.4%. This occurred despite a surge in corporate profits, driven by lower taxes and robust post-Covid demand.

Economic Slowdown

The National Statistics Office has projected India’s economy to grow at 6.4% in 2024-25, marking its slowest pace since the pandemic-induced contraction. One reason for the subdued growth is the muted government spending on infrastructure projects (capital expenditure) in the first half of the fiscal year. Typically, increased government spending generates demand for materials like cement, steel, and construction machinery, boosting factory capacity utilization. When capacity reaches around 80%, companies usually expand, leading to job creation in manufacturing and construction. A strong commitment from the government to ramp up spending is crucial for spurring growth and job creation.

Slow Growth of Jobs

During the Covid pandemic, millions of people migrated back to rural areas after losing jobs in cities, leading to a rise in agricultural employment. However, this reverse migration has not been fully reversed, partly due to limited job opportunities and the higher cost of living in urban areas. Although official data shows an increase in formal sector employment, India is still struggling to create enough jobs for those entering the workforce. Besides greater government infrastructure spending, private sector investment in labor-intensive industries is essential. Additional central incentives and support for medium, micro, and small enterprises would also be beneficial.

Incidence of Taxes

The high burden of taxes continues to be a challenge for lower- and middle-income groups. While the central government has limited ability to alter indirect taxes like the Goods and Services Tax (GST), as it is determined by the GST Council, lowering import duties on essential items such as edible oil and rationalizing taxes on petroleum products could offer some relief.  There has also been a long-standing demand to reduce income tax burdens for individuals in the lower- and middle-income brackets, as this would leave more disposable income. However, the NDA government has only made incremental changes so far.

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