NEW DELHI — Mild cuts in personal Income Tax rates to boost consumption and concessional Corporate Tax scheme for manufacturing hubs and FDIs to push the 'Make in India' strategy are likely in Budget 2025-26 with the government aiming to push economic growth, according to a private sector report.
“Watch for higher customs duty on gold and easier FDI norms. Some tweaks in the personal Income Tax slabs could be done to focus on increasing disposable income for the middle-income strata,” the report by Emkay Global Financial Services states.
“We will watch for some sweeteners in personal tax rates, concessional corporate tax scheme for manufacturing hubs/FDIs, possibly higher import tariffs on China-sensitive products, while lowering custom duties on industrial intermediaries,” the report states.
The new Budget will come on the back of the government again overachieving its gross fiscal deficit target in FY25 at 4.7 per cent of the GDP vs 4.9 per cent in FY25 (RE) amid solid personal Income Tax revenue stream.
In line with the fiscal glide path, FY26 fiscal deficit to GDP ratio will be targeted at around 4.5 per cent. This trend of the government overachieving its fiscal target has been seen over the last few years, the report points out.
According to the report, the Government’s net borrowing in FY26 will be lower than that in FY25 at Rs 11.15 lakh crore, with small savings likely to fund around 24 per cent of the fiscal deficit. It also expects the RBI dividend in the same ballpark as in FY25 at around Rs 2.1 lakh crore.
The policy ahead will stay focussed on improving growth potential in the medium term, including boosting the investment dynamics while maintaining fiscal discipline, the report states.
The government is expected to focus on ensuring that the fiscal impulse is maximised to boost growth, while offering additional support to some vulnerable segments of the economy.
Gross taxes are likely to grow around 9 per cent, with gross tax/GDP at around 11.7 per cent.
The report also sees boosting asset sales (via functional infrastructure monetisation, disinvestment, and strategic sales) and better resource allocation as the least growth-impinging instruments of deficit consolidation.
Spending proportion of revex over capex may be somewhat higher than seen in post-Covid years till FY24, with focus on human capital and the agricultural sector, according to the report.
The focus will be on rural spending, which will have a much faster fiscal multiplier effect and another leg of ‘Make in India’ push for industry is expected.
“We expect capex loans to states to be similar to that in FY25, with the biggest increase in allocation seen in Defence,” the report states.
Besides, the focus will be on welfare, rural, affordable housing, MSMEs, human capital (health, education), the report added,