Govt Likely to Announce Personal Income Tax Relief in Budget 2025: ICRA
The Union Budget for FY2026 may be a relief to personal income taxpayers, as suggested by a report from credit rating agency ICRA. Although the tax relief measures are expected to be modest, the report does not expect them to significantly impact revenue collections, which instead will be kept stable and predictable.
"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", the report stated.
The government will see a growth of 12% in the direct tax collection for FY2026, thanks to increased revenues from income and corporate taxes. Indirect tax collections are projected to grow at 9% with GSTs expected to go up by 10.5%. Customs duty collections may not fare as well due to uncertainty arising from possible revisions in US tariffs, which is likely to only marginally increase at 5%.
Gross tax revenue (GTR) is estimated to rise at a little higher rate than the nominal GDP growth forecast of 10%. Tax buoyancy, therefore, will be around 1.1. Though revenue deficit would be likely to reduce, in absolute terms, fiscal deficit is going to increase to Rs 16 trillion in FY2026 from Rs 15.4 trillion in FY2025. However, as a percentage of GDP, the fiscal deficit is expected to come down to 4.5% from 4.8% in FY2025 due to further consolidation.
A great deal of emphasis was laid on how important the recommendations by the 16th Finance Commission, likely to be released towards the fag end of the fiscal, might be while determining future fiscal targets.
ICRA predicts capital expenditure (capex) for FY2026 to be approximately Rs 11 trillion, marking a 12-13% increase from the estimated Rs 9.7 trillion in FY2025. This aligns with the government’s emphasis on bolstering manufacturing, generating employment, and advancing skill development to counter a slowdown in urban consumption and investment activity seen in FY2025.
Non-tax revenues, especially the RBI dividend, are a key factor in managing the fiscal deficit and making room for higher capex.
The report suggests that the government will look to push economic growth while maintaining fiscal discipline and sustainable public finances in the upcoming budget.
