Income Tax News: The Union Budget's focus on fiscal consolidation and tax cuts is expected to drive consumption, particularly among salaried individuals, according to a BNP Paribas report. The government's approach aims to reduce the fiscal deficit and promote discretionary spending, which could benefit various sectors.
Tax Cuts to Stimulate Consumption
The government has prioritised fiscal consolidation while introducing tax cuts to stimulate consumption. The fiscal deficit is expected to decrease to 4.4% in FY26 from 4.8% in FY25. By raising the income threshold and easing tax slabs in the new tax regime (NTR), the government aims to provide more disposable income to taxpayers. This move will primarily benefit salaried individuals, who make up a large portion of India's taxpayer base.
Benefits for Salaried Individuals
Around 75% of individuals have already switched to the new tax regime, and the government anticipates that most of the remaining taxpayers will follow suit. With these changes, salaried individuals are expected to see an increase in disposable income, ranging from 2-7%, depending on their income level. This will lead to higher spending capacity, particularly for small-ticket discretionary purchases like durable goods, automobiles, healthcare, and travel.
Economic Outlook and Government Assumptions
The government has set an ambitious GDP growth target of 10.1% for FY26 and projects a 10.8% increase in revenue receipts, while spending is expected to rise by 7.4%. Subsidies remain unchanged, and the primary increase in expenditure will be in interest outlay. The BNP Paribas report highlights that the tax cuts will provide additional disposable income of Rs 2,000-10,000 per month for taxpayers, further driving discretionary consumption across sectors.