The upcoming Union Budget 2025-26 is expected to bring mild reductions in personal income tax rates to spur consumption, alongside a concessional corporate tax regime for manufacturing hubs and foreign direct investments (FDIs) to strengthen the Make in India initiative, according to a report.
Key Tax Proposals to Watch For
The report suggests that the government may introduce:
- Higher customs duty on gold to curb imports.
- Easier FDI norms to attract global investments.
- Tweaks in personal income tax slabs to boost disposable income, especially for the middle class.
- Higher import tariffs on China-sensitive products while lowering duties on industrial intermediaries to support domestic manufacturing.
Fiscal Outlook & Government Borrowing
India is set to overachieve its gross fiscal deficit target for FY25 at 4.7% of GDP, better than the revised estimate of 4.9%. The fiscal deficit for FY26 is likely to be targeted at 4.5% of GDP, maintaining the fiscal consolidation trajectory.
The government's net borrowing for FY26 is projected to be Rs 11.15 lakh crore, lower than FY25, with small savings financing 24% of the deficit. The RBI dividend is expected to remain steady at Rs 2.1 lakh crore, similar to FY25.
Growth & Spending Priorities
The Budget is expected to:
- Maintain a growth-oriented fiscal approach while ensuring financial discipline.
- Boost gross tax revenues by 9%, with the gross tax-to-GDP ratio around 11.7%.
- Focus on asset sales, infrastructure monetization, and disinvestment as key deficit consolidation tools.
- Increase rural and social sector spending, given its strong fiscal multiplier effect.
- Provide higher capex loans to states, with the biggest increase in Defence spending.
- Continue support for MSMEs, affordable housing, health, and education sectors.
With India's economic growth momentum intact, Budget 2025-26 is expected to balance tax relief, growth incentives, and fiscal prudence to drive sustainable expansion.
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