Govt Expected To Announce Personal Income Tax Relief In Budget 2025: ICRA

Budget 2025: The government is likely to offer some relief to personal income taxpayers in the Union Budget for FY2026, according to an ICRA report. While the report anticipates minor tax relief measures, it suggests these are unlikely to have a significant impact on revenue collections. 

This cautious approach is intended to ensure stable and predictable tax inflows.

ICRA stated, "While there may be some tax relief to personal income taxpayers in the Budget, ICRA believes that its impact on revenues is unlikely to be material, to ensure stable and predictable tax flows in the fiscal."

ICRA has projected a 12 per cent growth in direct tax collections for FY2026, driven by higher income and corporate tax revenues.

On the other hand, indirect taxes are expected to grow by 9 per cent, with GST collections forecasted to increase by 10.5 per cent. Customs duty inflows are anticipated to rise by a modest 5 per cent, though uncertainty remains due to potential changes in US tariffs.

The report also indicated that the overall growth in gross tax revenue (GTR) for FY2026 is expected to slightly exceed the nominal GDP growth forecast of 10 per cent, resulting in a tax buoyancy of 1.1.

It highlighted a likely reduction in the revenue deficit but projected an increase in the fiscal deficit in absolute terms, reaching Rs 16 trillion in FY2026, up from Rs 15.4 trillion in FY2025.

However, as a percentage of GDP, the fiscal deficit is expected to decrease to 4.5 per cent, down from 4.8 per cent in FY2025, aided by fiscal consolidation efforts.

"ICRA awaits a forward-looking guidance on fiscal deficit targets or Central Government debt/GDP, even as the recommendations by the 16th Finance Commission will also be key, which may be released later in the fiscal," said the report.

ICRA expects capital expenditure (capex) for FY2026 to be around Rs 11 trillion, in line with the previous year's budget announcements but 12-13 per cent higher than the anticipated expenditure of Rs 9.7 trillion in FY2025.

This push for increased capex aligns with the government's focus on boosting manufacturing, generating employment, and enhancing skill development, aimed at countering the slowdown in urban consumption and investment activity observed in FY2025.

The report also highlighted the significance of non-tax revenues, particularly the Reserve Bank of India's (RBI) dividend, in influencing the fiscal deficit and providing additional space for capex in FY2026.

The upcoming budget is expected to prioritise economic growth while maintaining fiscal discipline, ensuring the long-term sustainability of public finances.

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