Union Budget 2025’s ₹1 Lakh Crore Bonanza: A Step to Revive India’s Consumption Story

Inclusive growth. Fiscal prudence. Consumption push. These themes stood out prominently in the Union Budget 2025-2026 presented by Finance Minister Nirmala Sitharaman on February 1, 2025, where she also announced a massive ₹1 lakh crore tax relief for the salaried class by changes in slab, rates, and rebate. 

The government’s stated goal? To bring back India’s consumption story on the cards by putting more money in the hands of consumers, encouraging spending, boosting demand, and driving economic growth. 

But how exactly does this tax cut work? Will it lead to an economic surge? And what does it mean for stock market investors? Let’s break it all down.

Understanding the Tax Cuts: What’s New in the 2025 Regime?

One of the biggest highlights of this Budget is the restructuring of income tax slabs exclusively under the new tax regime. From FY26, the government has significantly reduced the tax burden on middle-class taxpayers, aiming to increase disposable income.

Here’s how the new tax slabs look compared to the previous one:

 Revised new tax regime from 2025

 VS

 New tax regime in 2024:

So, under the new regime, a taxpayer earning up to ₹12 lakh annually, who were earlier required to pay tax varying from ₹20,000-₹80,000, will now be paying nil tax. Here’s a snapshot:

Tax benefits for different categories of taxpayers in the new tax regime for FY26:

 

^{Source: Income Tax India}

Notably, there was no change in the tax slabs in the old tax regime. However, a standard deduction of ₹50,000 is available in the old regime.

Thus, these reforms are expected to leave more money in the hands of taxpayers, creating a ripple effect across the economy.

More Money = More Spending?

Tax cuts immediately translate to more disposable income. But will this actually lead to higher consumption?

Analysts believe that the answer depends on two things:

1. Consumer Confidence – If people feel optimistic about the economy and their financial future, they will be more likely to spend more money than save it.
2. Inflation Levels – If inflation remains controlled, consumers will get more value for their money, increasing discretionary spending.

Past data from major economies like the US and China suggests that tax reliefs often result in short-term consumption spikes, particularly in sectors like:

Automobiles – More people may consider upgrading to bigger cars, possibly boosting sales for mid-range SUVs and electric vehicles.

Consumer Electronics – With more disposable income, people may purchase new smartphones, laptops, or home appliances.

Real Estate & Housing – Tax savings could improve affordability for homebuyers, especially in the mid-segment housing market.

Additionally, for industries reliant on discretionary spending, like travel, hospitality, and retail,this tax cut could be a much-needed boost.

Stock Market Implications: Will Retail Investors Benefit?

Now comes an interesting angle. With more money left in the hands of individuals, a significant portion of it could flow into the stock market. 

In context, on the day of the Budget, FMCG and automobile stocks saw an uptick following the announcements on tax reforms. These policy changes sparked a strong market reaction. Nifty FMCG rose 3%, while Nifty Auto and Nifty Realty gained 2% and 3.4% respectively on 1 February 2025.

Here’s more:

1. Effects on Retail Participation:

The Budget has always influenced investor sentiment. With extra savings, many middle-class investors might consider parking their additional income in stocks or mutual funds rather than leaving it idle in banks.

One of our smallcase managers, Sonam Srivastava, Founder, Wright research, pointed out, “For investors, financial planning post-Budget will require adjustments based on tax changes and new investment avenues.”

Another manager, Sneha Jain, Partner & CEO, WealthTrust Capital Services, cautioned on the stock valuations with the revised tax break, saying, “Stock valuations remain stretched, and we expect some rationality in consumption-driven stocks in the coming months. While market reactions may take time to stabilise, the long-term impact of these policy measures should support sustainable growth.”

2. Impact on Mutual Fund Inflows:

SIP (Systematic Investment Plan) inflows in equity mutual funds have consistently hit record highs in the past couple of months, reaching ₹26,459 crore in December 2024. A rising disposable income may encourage more investors to start or increase their SIP contributions, further driving market liquidity.

Which Sectors Can See Growth?

Stock market analysts predict that some key sectors could see increased investor interest:

1. Consumer Goods & Retail – FMCG, white goods, and retail brands could see revenue growth as consumer spending increases with more disposable income.
2. Banking & NBFCs – Higher economic liquidity could increase lending, benefitting financial institutions.
3. Real Estate – The ability to claim “nil valuation” for two self-occupied properties removes barriers for investors looking to purchase a second home, minimises tax pressures, and facilitates real estate investment, especially in second homes and Tier 2 and 3 cities. 

ICYMI: The Budget has proposed a pivotal change for property owners, allowing two self-occupied properties to be declared tax-free (up from one) and raising the TDS threshold on rent from ₹2.4 lakh to ₹6 lakh annually. They can claim nil annual value for the second property if it is self-occupied, without conditions, thus simplifying tax compliance and offering greater financial flexibility.

4. Auto – The Budget’s push for EV adoption through support for solar PV cells and battery ecosystems is expected to boost domestic manufacturing in the auto sector, especially EV manufacturers, battery suppliers, and ancillary industries. 

Moreover, the increase in disposable income will likely boost demand for affordable two-wheelers and entry-level cars, making it easier for middle-class families to invest in personal transportation.

However, while the tax relief is excellent news for consumption and investing, investors need to remain mindful of market conditions, global trends, and potential inflationary risks.

The Government’s Gamble: Final Thoughts

This tax relief is a bet on the middle class—putting more money in their hands with the expectation that they will spend, invest, and fuel economic growth. Contextually, for FY26, nominal GDP is projected to grow by 10.1% over the first Advance Estimates of FY25. 

If this strategy works, India’s GDP could see a demand-led boost, helping businesses flourish and having a positive impact on the stock markets.

That said, much will depend on how quickly consumers respond to these tax cuts. The overall impact will depend on how much of this additional income retail investors allocate towards equities versus consumption or savings.

From a personal finance perspective, taxpayers could take advantage of this newfound breathing space to:

–Pay off high-interest debt

–Increase SIP investments

–Explore high-quality stocks for long-term wealth creation

One thing is clear: Budget 2025-26 has set the stage for an interesting year ahead – for consumers, businesses, and investors alike. Whether it leads to an economic rally remains to be seen, but for now, the middle class has something to cheer about! 

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of a SEBI recognized supervisory body (if any) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice and nor to be construed as an offer to buy /sell or the solicitation of an offer to buy/sell any security or financial products.Users must make their own investment decisions based on their specific investment objective and financial position and using such independent advisors as they believe necessary.Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.