Middle-Class Spending: A Surge in Consumption
With increased disposable income, the middle class has exhibited a notable uptick in spending across various sectors. Consumer goods companies have reported heightened demand, particularly in fast-moving consumer goods (FMCG), automobiles, and real estate . This surge is attributed to the newfound financial flexibility allowing households to allocate funds toward both essential and discretionary purchases.
Notably, the automobile sector has experienced a boost, with increased sales in SUVs, sedans, and premium two-wheelers. Real estate developers have also observed a rise in inquiries and bookings, indicating a renewed interest in property investments among middle-class buyers .
GST Revenues: An Indirect Tax Windfall
The increased consumption has translated into higher Goods and Services Tax (GST) collections. In April 2025, GST revenues reached a record-breaking ₹2.37 lakh crore, marking a 12.6% year-on-year increase . This surge in indirect tax collection suggests that while direct tax revenues may have decreased due to the exemptions, the government is recuperating—and potentially surpassing—this through enhanced GST inflows.
Economic Implications: A Balanced Fiscal Approach
The government’s strategy appears to be fostering a consumption-led growth model. By reducing direct tax burdens, it has stimulated demand, which in turn boosts production, employment, and, consequently, indirect tax revenues. This approach aims to create a virtuous economic cycle where increased spending leads to broader economic benefits without compromising fiscal stability.
Conclusion: A New Economic Paradigm
The 2025 budget marks a significant shift in India’s fiscal policy, emphasizing the empowerment of the middle class as a catalyst for economic growth. The initial indicators—rising consumer spending and GST revenues—suggest that this approach is yielding positive results. As the economy continues to adapt to these changes, the long-term impacts will become more evident, potentially setting a precedent for future fiscal strategies.
In the glittering glow of zero tax up to ₹12 lakhs under the new regime (Section 115BAC), the middle class seems to have suddenly caught a breather. But in the background of this fiscal freedom, there lies a critical concern—are we compromising our long-term financial safety nets by ignoring what once was routine under the old regime: investments in Chapter VI-A instruments?
The Decline in Section 80C and VI-A Investments
Earlier, the ₹1.5 lakh deduction under Section 80C was the cornerstone of financial planning for millions of Indians. From PPFs, ELSS funds, life insurance premiums, to NSCs and tuition fees—these weren’t just tax-saving tools, they were wealth builders and emergency cushions.
Now, with the rise of Section 115BAC that offers a simplified regime with no deductions, many middle-class earners are opting for the ease of the new system. And with it, skipping these investments altogether. This behavioural shift, though seemingly harmless in the short term, carries heavy implications.
A recent market study found that post-Budget 2025, investments in traditional tax-saving products dropped by 17%, particularly in long-term plans like PPF and life insurance. IRDAI also reported a slowdown in new life insurance policy uptake in the first quarter of FY26, despite a buoyant economy.
Why These Investments Still Matter—Tax or No Tax
Whether you’re taxed or not, life remains uncertain. Insurance is not just for saving tax; it’s a foundational financial pillar. It ensures that families are protected against life’s unpredictable blows. Similarly, long-term savings instruments like PPF or ELSS don’t just earn returns—they instil disciplined financial habits.
During emergencies—medical, educational, or job loss—it is these accumulated savings and coverages that stand between dignity and debt.
The Middle-Class Mantra: Invest With or Without Deductions
Hence, the lesson here is simple but profound: tax planning and financial planning are not always twins. Even if you are enjoying tax-free income under the new regime, the discipline of investing in insurance, health cover, pension funds, and secured instruments must continue. These are not optional luxuries—they are your safety net, your retirement corpus, and your peace of mind.
So, while the government might have generously waived off your taxes, don’t waive off your responsibility to your future. Let every rupee saved be planted into the soil of prudence, whether or not the Income Tax Act compels you to do so.
CA Sandeep Ramankutty
