Income Tax Rate Reductions and Increased Gold Tariffs Anticipated in 2025-26 Budget: Report
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Synopsis
In Budget 2025-26, the government plans to implement modest cuts in personal Income Tax rates and enhance tariffs on gold to stimulate economic growth and support the 'Make in India' initiative, according to a report by Emkay Global Financial Services.
Key Takeaways
- Income Tax cuts to enhance consumption
- Increased customs duty on gold
- Concessional Corporate Tax for manufacturing
- Focus on rural spending
- Defence allocation increased
New Delhi, Jan 27 (NationPress) Modest reductions in personal Income Tax rates are anticipated to enhance consumption, alongside a concessional Corporate Tax scheme aimed at manufacturing hubs and foreign direct investments (FDIs) to advance the 'Make in India' initiative, as per a private sector report.
“Expect increased customs duties on gold and more favorable FDI regulations. Adjustments to personal Income Tax brackets may occur to improve disposable income for the middle-income group,” the report from Emkay Global Financial Services indicates.
“We will be observing potential incentives in personal tax rates, a favorable corporate tax structure for manufacturing and FDI, along with possibly heightened import duties on products sensitive to China, while reducing customs duties on industrial intermediaries,” the report elaborates.
The forthcoming budget is set against the backdrop of the government surpassing its gross fiscal deficit target for FY25 at 4.7 percent of GDP, compared to 4.9 percent in FY25 (RE), thanks to robust personal Income Tax revenues.
In accordance with the fiscal trajectory, the FY26 fiscal deficit to GDP ratio is projected at around 4.5 percent. This trend of the government consistently exceeding its fiscal goals has been observed in recent years, the report notes.
The report indicates that the government's net borrowing in FY26 will be lower than in FY25, amounting to ₹11.15 lakh crore, with small savings expected to cover approximately 24 percent of the fiscal deficit. It also anticipates the RBI dividend to remain consistent with FY25 at about ₹2.1 lakh crore.
The upcoming policy will prioritize enhancing growth potential in the medium term, including improvements in investment dynamics while maintaining fiscal prudence, according to the report.
The government is projected to concentrate on maximizing fiscal impulses to stimulate growth, while providing additional support to vulnerable sectors of the economy.
Gross tax revenues are expected to rise by around 9 percent, with the gross tax/GDP ratio around 11.7 percent.
The report also highlights the importance of boosting asset sales (through functional infrastructure monetization, disinvestment, and strategic sales) and efficient resource allocation as less disruptive means of deficit consolidation.
It is anticipated that the spending ratio of revenue expenditure over capital expenditure may be slightly higher than in the post-COVID period until FY24, with an emphasis on human capital and the agricultural sector, according to the report.
The focus will shift towards rural spending, which is expected to have a much quicker fiscal multiplier effect, and another component of the 'Make in India' initiative for industry is anticipated.
“We expect capital expenditure loans to states to mirror those of FY25, with the largest allocation increases seen in Defence,” the report states.
Additionally, the emphasis will be on welfare, rural development, affordable housing, MSMEs, and human capital (health and education), the report concluded.
