The much-awaited sequel to February's Interim Budget has arrived. While the Interim Budget was just a placeholder, the Full Budget for FY25 lays out the financial roadmap now that the previous government, through a coalition, is back in power.

Encouraging Employment

India's employment situation is a mixed bag. Although the number of employed people has increased by 3% over the past seven years, unemployment has risen by 12%. The main issue is that job creation hasn't kept up with the increasing number of job seekers.

New Employment-Linked Incentive Schemes

To address this, the government introduced three new employment-linked incentive schemes aimed at both employers and employees:

1. Salary Payment for New Employees: The government will pay the first month's salary (up to ₹15,000) for newly employed individuals registered under the Employees’ Provident Fund (EPF), provided they earn up to ₹1 lakh a month.

2. EPF Contribution Reimbursement: Employers will be reimbursed up to ₹3,000 per month for two years for EPF contributions for each new hire.

3. Manufacturing Sector Scheme: A similar scheme exists for the manufacturing sector with slightly different rules.

Upskilling and Financial Assistance

The government plans to upskill 20 lakh youth through 1,000 upgraded Industrial Training Institutes over the next five years. Additionally, a government-backed loan scheme will provide financial assistance to 25,000 students for these programs.

Supporting Women in the Workforce

Post-COVID, female employment in India dropped by 9%. To address this, the government plans to set up working women's hostels and creches to help women balance work and home duties, ensuring their participation in the workforce continues to improve.

Boosting Companies and Startups

Corporate Tax and Angel Tax Changes

The government has reduced corporate tax rates for foreign companies from 40% to 35%. However, the significant change involves the angel tax:

1. Angel Tax Background: Introduced in the 2012 Budget, the angel tax aimed to tackle black money by taxing excess amounts paid by domestic investors for shares in unlisted companies. This hurt startups as they had to reserve a significant portion of their initial funding for taxes.

2. Recent Changes: The angel tax exemption on foreign investments was removed, causing funding to plummet. The government has now rolled back the angel tax for all types of investors to help startups get the funding they need.

Diamond Cutting and Polishing Industry

India is a world leader in diamond cutting and polishing. To support this sector, the government introduced safe harbour rates to make tax rates predictable for foreign mining companies selling raw diamonds in India. This predictability helps attract more raw diamond imports and supports local craftsmen.

Personal Income Taxes

New Tax Regime Tweaks

1. Standard Deduction Increase: For salaried individuals, the standard deduction has increased from ₹50,000 to ₹75,000, and from ₹15,000 to ₹25,000 for pensioners.

2. Tax Rate Adjustments:

- No tax on income up to ₹3 lakhs.

- 5% on income between ₹3 lakhs and ₹7 lakhs.

- 10% on income between ₹7 lakhs and ₹10 lakhs.

- 15% on income above ₹10 lakhs.

3. National Pension Scheme (NPS) Contributions: The deductible amount for employer contributions to NPS has increased from 10% to 14% for both private and public sector employees.

Trade-offs

1. Capital Gains Taxes:

- Short-term: 20% (up from 15%).

- Long-term: 12.5% (up from 10%).

- No indexation benefit on real estate investments.

2. Share Buybacks: Tax on gains from share buybacks must now be paid by the individual.

3. Futures and Options Trading: Transaction tax rates have increased.

Balancing the Fiscal Deficit

To reduce the gap between receipts and expenditure, the government aims to bring the fiscal deficit down to 4.9% of GDP from 5.1% expected for FY25, targeting 4.5% by FY26.

The positives include various employment incentives, support for women in the workforce, tax reliefs for startups, and industry-specific measures. Negatives focus on increased capital gains taxes and higher costs for trading futures and options. Neutral points highlight the government's fiscal deficit targets and the ongoing challenge of matching job creation with employment rates. This Budget attempts a balancing act between stimulating growth and maintaining fiscal discipline.