The new exemption limit was fixed at Rs. 2.5 lakh — from the existing Rs. 2 lakh. For senior citizens, the exemption limit was raised from Rs. 2.5 lakh to Rs. 3 lakh. Besides, the government raised the tax exemption on home loans from Rs. 1.5 lakh to Rs. 2 lakh.

Retaining the tax collection targets, the government kept direct tax rates unchanged and said it will review the direct tax code proposal.

Jaitley said, in the current fiscal, the non-tax revenue was seen at Rs.2.12 trillion rupees, while the capital receipts were seen at Rs. 739.5 billion.

In another major move, the foreign direct investment (FDI) limit was raised to 49% in insurance and defence. Jaitley also promised a stable tax regime and the formation of a high-level committee to deal with retrospective taxation, but refused to change rules in such cases.

Investors were spooked after the UPA introduced retrospective taxation in 2012, a move that allowed the previous government to raise tens of billions of dollars in tax remands from foreign companies.

Government overspending will be brought down dramatically in the next three years, with the fiscal deficit reduced to 3% in 2016/17, Jaitley said.

He projected the fiscal deficit at 3.6% of the gross domestic product (GDP) in 2015/16, accepting the fiscal deficit target of 4.1% in the current fiscal.

The finance minister also said the government aimed at sustained growth of 7-8% in the next 3-4 years, as the Economic Survey projected 5.4-5.9% GDP growth in fiscal 2014-15.

Jaitley told Parliament that the new government, in office for less than, had inherited a "challenging" situation of low growth and high inflation from the previous Congress regime. "Slow decision making has resulted in a loss of opportunity."

India's gross domestic product (GDP), the total value of all goods and services produced within the country's boundaries, has clocked sub-5% growth in two consecutive years.

With slow growth and escalating prices delivering a blow to the economy, Jaitley said the new government was bound to usher in policies for higher growth and lower inflation.

Jaitley said the budget was "the beginning of a journey to sustain seven to 8% growth in the next three to four years."

The finance minister also said the government intended to sell an unspecified amount of shares in the debt-laden public banks which are in need of fresh equity.

"The government will continue to hold majority ownership, but the citizens of India will get direct shareholding in these banks."

But the Sensex, the leading index of the Bombay Stock Exchange, fell 0.99% to 25,193.55 points around noon as investors apparently reacted with disappointment to the absence of any sweeping structural reforms in Asia's third-largest economy.

Jaitley also said the government will work for the poor. But, taking up an issue raked up time and again during the election campaigns of Prime Minister Narendra Modi, he argued that the poor had become aspirational and wanted job opportunities and better infrastructure, not just handouts.

"It is the poor that suffer the most," Jaitley said, "We have to ensure that our anti-poverty programmes are well targeted."

The finance minister said he wanted a solution by December on how India will impose a national Goods and Services Tax (GST), promising that the government will be "more than fair" in its dealings with states on how revenue will be allocated.

The government also raised the defence capital spending.

Highlights of the Union Budget 2014-15
 

Fiscal deficit

* Accepts fiscal deficit target of 4.1% of GDP for 2014/15
* Fiscal deficit seen at 3.6% of GDP in 2015/16
* Finance minister says: "We cannot spend beyond our means"
* Tax-to-GDP ratio must be raised
 

Growth

* Aims for sustained growth of 7-8% in the next 3-4 years
* Finance minister says he is bound to usher in policies for higher growth, lower inflation
 

Taxation

* Aims to approve goods and services tax by end of this year
* Will not change rules on retrospective taxation 
* All pending cases of retrospective tax for indirect transfers to be examined by a high-level committee before action is taken
* Proposes changes in transfer pricing mechanism
 

Investment

* Raises limit on foreign direct investment in defence sector from 26% to 49%; raises FDI limit in insurance sector to 49%
* Earmarks 70.6 billion rupees to create 100 "smart cities"
* Will provide the necessary tax changes to introduce real estate investment trusts and infrastructure investment trusts
* Proposes 40 billion rupees for affordable housing through national housing bank and extends tax incentives for housing loans

 
Subsidies

* Plans to make food and petroleum subsidies more targeted
* Rural job-guarantee scheme, which provides 100 days of paid employment a year, will become more focused on asset creation
* Proposes 80 billion rupees for rural housing scheme
(With Reuters and AFP inputs)