FinTech's Union Budget 2025-26 Wishlist: MSMEs, Rural Communities, and Salaried Workers Previously, the Union Budget 2024-25 focused on employment, skilling, MSMEs, and the middle class

As India gears up for Finance Minister Nirmala Sitharaman to present the Union Budget for the 2025-26 financial year on February 1, Indian fintechs are calling for measures to be considered during the making of the annual budget of the country.

Previously, the Union Budget 2024-25 focused on employment, skilling, MSMEs, and the middle class. Among other announcements, Sitharaman shared about the provision of INR 1.52 lakh crore for agriculture and allied sectors, over 100 branches of India Post Payment Bank to be set up in the North-East region to expand the banking services, the limit of Mudra loans enhanced to INR 20 lakh from the INR 10 lakh for entrepreneurs under the 'Tarun' category, and a comprehensive rationalization of GST tax structure.

According to the FM, over 58 per cent of corporate tax came from a simplified tax regime in 2022-23 and more than two-thirds of taxpayers switched to the new personal income tax regime.

Ahead of Union Budget 2025- 26, improved financial offerings and benefits to underserved communities, increased tax slabs, and a strengthened MSME lending ecosystem are some of the expectations fintech players have from the government.

Making essential financial and digital services accessible

NABARD's All India Rural Financial Inclusion Survey (NAFIS) for 2021-22, published on October 10, 2024, reported that financial literacy increased by 17 percentage points, rising from 33.9 per cent in 2016-17 to 51.3 per cent in 2021-22. Under financial inclusion schemes, Pradhan Mantri Jan Dhan Yojana (PMJDY) reported the progress of having 35.95 crore accounts in Rural/Semi-urban.

"A waiver of GST on all financial services offered at BC outlets, which serve as the backbone of rural banking in India, would ease the financial burden on last-mile agents and encourage more retailers to participate in delivering seamless banking services to underserved communities," said Anand Kumar Bajaj, founder, MD & CEO, PayNearby.

"We urge tax benefits on total expenditure for fintechs operating in rural regions, which can improve cash flow and ensure smooth operations," he added. Suggested measures include a dedicated five per cent GST rate for start-ups focused on last-mile empowerment, enabling essential financial and digital services for citizens.

Prioritize inflation as a critical factor

The Reserve Bank of India has projected Q1 inflation at 4.6 per cent and Q2 at four per cent for FY 2025-26.

Ashish Goyal, co-founder & CFO, Fibe feels there is an opportunity for the Government to address the challenges faced by individuals especially the middle-income group and startup ecosystem alike in the upcoming Union Budget. "This Budget should prioritize inflation as a critical factor and the Finance Ministry must consider increasing tax slabs. This will provide significant relief to salaried individuals, leaving them with increased disposable income and giving a boost to consumer spending," he said.

The gross direct tax collections during FY 2024-25 were INR 15,02,161 Crore, according to ClearTax data. Previously, the standard deduction for salaried employees was proposed to be increased from INR 50,000 to INR 75,000. Presently, the tax rate structure is NIL for INR 0-3 lakh, five per cent for INR 3-7 lakh, 10 per cent for INR 7-10 lakh, 15 per cent for INR 10-12 lakh, 20 per cent for INR 12-15 lakh, and 30 per cent for above INR 15 lakh.

CA Anand Bathiya, president, Bombay Chartered Accountants' Society (BCAS) said, "The tax rates for individuals earning high income are also exceedingly high." He suggests lowering individual tax rates to a maximum of 30 per cent (including surcharge and cess). According to TATA AIA, the top marginal tax rate is 42.744 per cent, applicable when the taxable income exceeds INR five crores.

MSME lending ecosystem

The Micro, Small and Medium Enterprises (MSME) sector contributes approximately 30 per cent to the nation's Gross Domestic Product (GDP) and employs about 62 per cent of the workforce. Despite the significance, the sector faces a substantial credit gap with only 14 per cent of MSMEs having access to formal credit.

"Small businesses often lack collateral, making it difficult for them to secure loans. To address this, the government could simplify eligibility criteria for NBFCs under schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). By increasing the guaranteed coverage, lenders would be more willing to provide unsecured loans, reducing the risk on their end and empowering MSMEs to access credit without hurdles…Additionally, creating a dedicated fund for developing advanced fintech tools for MSME credit evaluations would further improve loan processes and make them more reliable," said Ritesh Jain, co-founder, FlexiLoans.com.

"The Union Budget 2025 aims to change the face of MSMEs with a high focus on digitalization and ensuring financial inclusion, providing various tools with ULI and TReDS for easy credit access…MSMEs find it challenging to secure funding, and call for greater transparency and higher credit guarantee funds," said Mukesh Pandey, director, Rupyaa Paisa.