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Economy, Budget & Banking 2025

Union Budget 2025-26 and the new Income-tax Act, RBI rate cuts, GDP growth figures, UPI records, the GST 2.0 reform, US tariffs and India's new trade agreements.

Lessons in this module

1

Union Budget 2025-26 and the Income-tax Act, 2025

Lesson • 5 quiz questions

Read notes ↓
2

RBI, GDP Growth, UPI and Credit Rating

Lesson • 5 quiz questions

Read notes ↓
3

GST 2.0 and Trade: Tariffs and New Agreements

Lesson • 5 quiz questions

Read notes ↓

Lesson notes

1. Union Budget 2025-26 and the Income-tax Act, 2025

Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26 on 1 February 2025. It was her eighth consecutive Budget. Its biggest headline was income-tax relief for the middle class. Later in the year, Parliament passed a brand-new Income-tax Act.

Income-tax changes (new tax regime)

  • No income tax on income up to Rs 12 lakh a year under the new regime. The Section 87A rebate was raised from Rs 25,000 to Rs 60,000.
  • For salaried people, with the Rs 75,000 standard deduction, the tax-free limit becomes Rs 12.75 lakh.
  • New slabs: up to Rs 4 lakh nil; 4–8 lakh 5%; 8–12 lakh 10%; 12–16 lakh 15%; 16–20 lakh 20%; 20–24 lakh 25%; above Rs 24 lakh 30%.
  • The TDS limit on interest for senior citizens was doubled from Rs 50,000 to Rs 1 lakh.
  • The old tax regime's slabs were not changed.

Key Budget numbers and announcements

  • Fiscal deficit target for 2025-26: 4.4% of GDP (revised estimate for 2024-25: 4.8%).
  • Total expenditure: about Rs 50.65 lakh crore. Capital expenditure (capex): Rs 11.21 lakh crore.
  • FDI limit in insurance raised from 74% to 100% for companies that invest the entire premium in India.
  • Kisan Credit Card loan limit raised from Rs 3 lakh to Rs 5 lakh under the modified interest subvention scheme.
  • Other announcements: PM Dhan-Dhaanya Krishi Yojana (100 districts), a Makhana Board in Bihar, a six-year mission for self-reliance in pulses, and 10,000 PM Research Fellowships.

Income-tax Act, 2025

  • The Income-tax Bill, 2025 was introduced on 13 February 2025 and sent to a Select Committee of the Lok Sabha.
  • That Bill was withdrawn and a revised Income-tax (No. 2) Bill was passed by the Lok Sabha on 11 August and the Rajya Sabha on 12 August 2025.
  • The President gave assent on 21 August 2025. The Act came into force on 1 April 2026 and replaced the Income-tax Act, 1961.
  • It replaces the separate 'previous year' and 'assessment year' with a single 'tax year'.
  • The government said the aim was simpler language and fewer sections; tax rates were not the focus of the new Act.
Quick facts
Budget date
1 Feb 2025 (Sitharaman's 8th consecutive)
Tax-free income (new regime)
Rs 12 lakh (Rs 12.75 lakh for salaried)
87A rebate
Raised to Rs 60,000
Fiscal deficit 2025-26
4.4% of GDP
Capex 2025-26
Rs 11.21 lakh crore
Insurance FDI
74% to 100%
Income-tax Act, 2025
Assent 21 Aug 2025; in force 1 April 2026; 'tax year'

💡 Exams love the slab table. Write it out once from memory: 4-8-12-16-20-24 with rates 0-5-10-15-20-25-30.

📝 5-question quiz on this lesson: enrol free to take it and track your score.

2. RBI, GDP Growth, UPI and Credit Rating

2025 was a year of falling interest rates. Inflation came down, and the RBI under Governor Sanjay Malhotra cut the repo rate several times. GDP data, UPI records and India's first credit-rating upgrade in 18 years also made headlines.

RBI repo rate moves in 2025

  • 7 February 2025: repo rate cut by 25 basis points to 6.25%, the first cut in nearly five years.
  • 9 April 2025: cut by 25 bps to 6.00%.
  • 6 June 2025: a bigger cut of 50 bps to 5.50%. The Cash Reserve Ratio (CRR) was also cut by 100 bps to 3%, in stages.
  • August and October 2025: repo rate kept unchanged at 5.50%.
  • 5 December 2025: cut by 25 bps to 5.25%, with a neutral stance. Total reduction in 2025: 125 bps (from 6.50% to 5.25%).
  • In December 2025 the RBI projected GDP growth of 7.3% and CPI inflation of 2.0% for 2025-26.

GDP growth figures (source: MoSPI / NSO)

  • 2024-25 (provisional estimate, 30 May 2025): real GDP growth of 6.5%.
  • April–June 2025 (Q1 of 2025-26): 7.8%, released on 29 August 2025.
  • July–September 2025 (Q2 of 2025-26): 8.2%, released on 28 November 2025, the highest in six quarters.
  • For the first half (April–September 2025), growth was 8.0%.

UPI and credit rating

  • UPI crossed 20 billion transactions in a single month for the first time in August 2025, worth about Rs 24.85 lakh crore (NPCI data).
  • UPI is run by NPCI (National Payments Corporation of India).
  • On 14 August 2025, S&P Global Ratings upgraded India's long-term sovereign rating from BBB- to BBB with a stable outlook.
  • It was India's first upgrade by S&P in 18 years. The Finance Ministry welcomed it as an affirmation of fiscal management.
Quick facts
Repo rate, end of 2025
5.25% (cut on 5 Dec 2025)
Biggest cut of 2025
50 bps on 6 June 2025 (to 5.50%)
CRR after June 2025
3% (cut by 100 bps in stages)
GDP 2024-25
6.5% (provisional)
Q2 2025-26 GDP
8.2% (six-quarter high)
UPI milestone
20 billion transactions in August 2025
S&P rating
BBB- to BBB on 14 Aug 2025

💡 Track the repo rate as a staircase: 6.50 → 6.25 (Feb) → 6.00 (Apr) → 5.50 (Jun) → 5.25 (Dec).

📝 5-question quiz on this lesson: enrol free to take it and track your score.

3. GST 2.0 and Trade: Tariffs and New Agreements

In September 2025, India carried out the biggest change in GST rates since GST began in 2017. On trade, India faced higher US tariffs, signed a free trade agreement with the United Kingdom and brought its pact with four European countries into force.

GST 2.0 (September 2025)

  • The 56th meeting of the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, was held on 3 September 2025.
  • It approved a simpler structure with two main rates, 5% and 18%. The 12% and 28% slabs were removed for most goods.
  • A special 40% rate was fixed for a small list of luxury and 'sin' goods, such as carbonated drinks, large cars and motorcycles above 350 cc.
  • Individual life and health insurance policies were exempted from GST.
  • The new rates came into effect on 22 September 2025, the first day of Navratri.

United States tariffs on India

  • The US announced a 25% 'reciprocal' tariff on Indian goods at the end of July 2025.
  • On 6 August 2025, the US President signed an order adding another 25% because of India's purchase of Russian oil, effective 27 August 2025.
  • This took the total additional US tariff on many Indian goods to 50%.
  • The Government of India called the additional tariff unfair and said it would protect the interests of farmers and exporters.

New trade agreements

  • India–UK Comprehensive Economic and Trade Agreement (CETA) was signed on 24 July 2025, during PM Modi's visit to the UK, in the presence of UK PM Keir Starmer.
  • CETA came into force on 15 July 2026, after both sides completed their approvals.
  • India–EFTA Trade and Economic Partnership Agreement (TEPA) came into force on 1 October 2025. It was signed on 10 March 2024.
  • EFTA members are Switzerland, Norway, Iceland and Liechtenstein. They committed to USD 100 billion of investment in India over 15 years, aiming at 10 lakh direct jobs.
Quick facts
GST Council meeting
56th, on 3 Sept 2025
GST 2.0 slabs
5% and 18% (plus 40% special rate)
GST 2.0 effective
22 Sept 2025 (Navratri)
Extra US tariff for Russian oil
25%, effective 27 Aug 2025 (total 50%)
India–UK CETA
Signed 24 July 2025; in force 15 July 2026
India–EFTA TEPA
In force 1 Oct 2025; USD 100 bn investment pledge

💡 EFTA has four members only: remember 'SNIL' (Switzerland, Norway, Iceland, Liechtenstein).

📝 5-question quiz on this lesson: enrol free to take it and track your score.

Other modules in Current Affairs 2025: India & World

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