Tax Reductions Expected to Boost Discretionary Spending Among Salaried Workers: Report
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Synopsis
A recent report indicates that the Union Budget's tax cuts are aimed at increasing discretionary spending among salaried individuals, with a focus on fiscal consolidation and stimulating consumption.
Key Takeaways
- Tax cuts are likely to enhance discretionary spending.
- Fiscal deficit target is 4.4% for FY26.
- About 75% of taxpayers have moved to the new tax regime.
- Disposable income may rise by 2-7% for taxpayers.
- Majority of beneficiaries are salaried individuals.
New Delhi, Feb 4 (NationPress) The trajectory of fiscal consolidation remains intact with the Union Budget, and tax reductions are expected to enhance discretionary spending, particularly among the salaried workforce, as indicated by a report released on Tuesday.
While reaffirming its dedication to fiscal discipline, the government aims to stimulate consumption through tax cuts. The goal is to reduce the fiscal deficit to 4.4 percent in FY26, down from the projected 4.8 percent for FY25.
According to a BNP Paribas report, The Budget assumptions appear reasonable, with the exception of the income tax projections, which are deemed overly optimistic.
The government has increased the income threshold and made tax slabs more lenient for taxpayers opting for the new tax regime (NTR). Approximately 75 percent of individuals have transitioned to the NTR, and the government anticipates that most remaining taxpayers will also switch, potentially marking the end of tax exemption benefits.
This Budget emphasizes reviving consumer spending by raising the income threshold and adjusting tax slabs, which is expected to elevate the disposable income of taxpayers in India by 2-7 percent, based on their income levels.
“We predict this will bolster discretionary spending across various sectors, including durables, automobiles, asset management, healthcare, travel, and jewelry—all key components of our 'Affluent India' selections,” the report stated.
Increased disposable income is also likely to enhance retail asset quality, particularly in the unsecured segment.
On average, taxpayers will see an increase in disposable income ranging from Rs 2,000 to Rs 10,000 monthly, which could be allocated for small-ticket discretionary purchases.
The majority of Indian taxpayers are salaried workers. Among those reporting annual incomes exceeding Rs 10 lakh in FY23, 9.7 million were salaried individuals, meaning these benefits will primarily favor this demographic.
For FY26, the government anticipates a GDP growth rate of 10.1 percent, a 10.8 percent rise in revenue receipts, and a 7.4 percent increase in expenditure. Subsidies are expected to remain stagnant year-on-year, with the largest rise in revenue expenditure allocated to interest payments, the report concluded.
