Image used for representative purpose only
| Photo Credit: Shiv Kumar Pushpakar

The government in FY26 Budget should announce an “effective” personal income tax cut to support consumption and demand, Barclays said on Thursday (January 23, 2025).

In its FY25-26 Union Budget preview, Barclays said the key ask from the Budget, to be presented on February 1, is to support growth while adhering to fiscal consolidation path.

Barclays India Chief Economist, Aastha Gudwani said in a quest to support consumption, the finance minister should provide an effective personal income tax rate cut by further tweaking the tax slabs. This is unlikely to have a sizable fiscal cost.

“That said, improved tax buoyancy will likely make up for revenue foregone under this announcement. We think a boost to consumption is needed, especially with private investment also now awaiting the increase in demand growth,” Mr. Gudwani said.

Barclays expects Finance Minister Nirmala Sitharaman to announce changes to the new tax regime, making it lucrative for more and more taxpayers.

In the last Budget, the government had increased standard deduction for salaried taxpayer to ₹75,000, and deduction on family pension for pensioners to ₹25,000 under the new tax regime, which offers lower rate of taxes.

The new tax regime exempts income up to ₹3 lakh. Those earning annually between ₹3-7 lakh pay 5% tax, ₹7-10 lakh (10%), ₹10-12 lakh (15%), ₹12-15 lakh (20%) and above ₹15 lakh (30%).

Barclays said another potential option to boost disposable income and purchasing power while containing inflation, could be a reduction in excise duty for fuel.

Retail prices for fuel have remained almost constant since 2022 despite lower global crude prices. Barclays said customs duty announcements in Budget will be pivotal to understand government’s response to tariffs under Trump 2.0.

Given the uncertainty that Trump 2.0 brings along with, slower global trade and a fragmented world order is a reality India needs to prepare for. “We thus expect multiple tweaks in customs duty structure , especially on items where dumping concerns from China are rising (eg, steel, glass, basic metals). We expect a modest increase in customs duty collections in FY25-26 vs FY24-25,” Mr. Gudwani said.

Barclays expects the government to overachieve the fiscal deficit target for current fiscal by 20 basis points, at 4.7% of GDP and 2025-26 deficit to be pegged at 4.5% of GDP or about ₹16.3 lakh crore.

Barclays said it awaits the debt consolidation roadmap from FY26-27 onwards to see by when the finance minister sees general government debt-to-GDP fall to the 60% target.

The finance minister, in her 2024-25 budget speech, had stated that from 2026-27 onwards, the endeavour of fiscal policy would be to maintain the fiscal deficit in a way that the central government debt is on a declining path as a percentage of GDP.

The fiscal rules envision general government debt to be 60% of GDP with 2:1 ratio between the Centre and states. This would mean the central government would have to reduce its debt from 57% plus currently to 40% over the medium term.

These rules have been kept in abeyance ever since the pandemic struck in FY20-21, with the government only outlining the fiscal deficit target for FY25-26.

“Hence, in this budget, we would also watch out for the government’s proposed medium-term targets as mandated under its fiscal responsibility legislation,” Mr. Gudwani said.

Barclays expects nominal GDP growth of 10.5% in FY26, up from an estimated 9.7% in FY24-25.

Union Finance minister Nirmala Sitharaman
| Photo Credit: Murali Kumar K

As many as 57% of individual taxpayers want taxes to be lowered in the upcoming Budget, Grant Thornton Bharat’s pre-budget survey said on Wednesday (January 22, 2025).

The survey said although 72% of individual taxpayers have opted for a new income tax regime, a majority (63%) of taxpayers still seek an increase in incentives under the old tax regime.

To further enhance the appeal of the new tax regime, about 46% of respondents advocate for lowering tax rates, while 26% believe exemption limits can be increased.

Grant Thornton Bharat’s pre-budget survey had over 500 respondents. The survey results reveal that individual taxpayers seek relief on the personal tax front to increase their disposable income.

A majority of respondents, 57%, want lower income tax rates, while 25% advocate for higher exemption limits in the 2025-26 Budget to be presented on February 1.

The majority of respondents, 53%, are advocating for the government to allow the set-off of house property losses under the new tax regime, the survey said.

Around 47% desire a hike in the set-off limit or removal of the ₹2 lakh limit altogether under the old regime.

These changes would provide greater flexibility in offsetting losses, boost investment in real estate, and enable taxpayers to fulfil their aspirations to secure a reasonable residential accommodation.

Grant Thornton Bharat, Partner, Akhil Chandna said an increase in NPS tax deduction limits and more flexible NPS withdrawal rules would certainly promote retirement savings in the hands of taxpayers.

“Further, to promote a greener environment through the use of electric vehicles (EV), clarity is expected from the government on perquisite taxation rules for EV usage, and the deduction for the purchase of EVs should be reinstated under the law,” Mr. Chandna said.