Cuts in Income Tax Rates and Higher Gold Tariffs Expected in Budget 2025-26

New Delhi: As the Union Budget 2025-26 approaches, significant measures to bolster economic growth are anticipated. According to a report by Emkay Global Financial Services, the government may introduce mild cuts in personal income tax rates to increase consumption and implement a concessional corporate tax scheme aimed at promoting manufacturing hubs and foreign direct investments (FDIs) under the ‘Make in India’ initiative.

Proposed Tax Reforms and Policy Changes

The government is expected to focus on creating fiscal flexibility for citizens and industries. Here are the likely tax changes and measures outlined in the report:

1. Personal Income Tax Relief:
   • Mild tweaks in tax slabs are anticipated to increase disposable income for the middle-income group, aiming to boost consumer spending.
   • These reforms are designed to strengthen domestic demand while reducing the financial burden on taxpayers.
2. Corporate Tax Adjustments:
   • A concessional tax scheme for manufacturing hubs and FDIs to encourage domestic and foreign investments under the ‘Make in India’ strategy.
3. Customs Duty Revisions:
   • Likely higher tariffs on gold imports to curb non-essential imports.
   • Possible higher import tariffs on China-sensitive products to promote domestic production.
   • Lowered custom duties on industrial intermediaries to support local industries and reduce costs.

Fiscal Discipline and Growth Strategy

The Budget 2025-26 is expected to reflect the government’s commitment to maintaining fiscal discipline while prioritizing economic growth:

• Fiscal Deficit:
  • The government aims to achieve a fiscal deficit to GDP ratio of approximately 4.5% in FY26, continuing its trend of overachieving fiscal targets.
  • The FY25 fiscal deficit is estimated at 4.7% of GDP, compared to the Revised Estimate (RE) of 4.9%.
• Borrowing Plans:
  • Net government borrowing for FY26 is projected to decline to ₹11.15 lakh crore.
  • Small savings schemes are expected to fund approximately 24% of the fiscal deficit.
  • RBI dividends are projected at ₹2.1 lakh crore, similar to FY25.

Sectoral Focus and Growth Areas

The government is likely to prioritize sectors with high growth potential and fiscal multipliers:

1. Infrastructure and Asset Monetization:
   • Boosting asset sales through infrastructure monetization, disinvestment, and strategic sales to ensure efficient resource allocation.
   • Strategic initiatives in asset monetization to support long-term growth without burdening fiscal finances.
2. Defense and Capex:
   • A substantial increase in allocations for defense spending and capital expenditure (capex) loans to states.
   • Capex loans are expected to remain at FY25 levels to maintain a steady investment pace.
3. Rural Development and Welfare Schemes:
   • Enhanced focus on rural spending, with targeted measures for agriculture and rural infrastructure.
   • Welfare programs for vulnerable groups, including affordable housing and MSMEs, are expected to receive additional support.
4. Human Capital Development:
   • Continued investment in education, healthcare, and skill development to foster long-term economic growth.

Projected Tax Revenue and Resource Mobilization

• Gross taxes are estimated to grow by approximately 9%, with the gross tax-to-GDP ratio expected to reach 11.7%.
• Focus on increasing revenue through efficient taxation policies and boosting non-tax revenue streams.

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‘Make in India’ and Industrial Growth

The budget is expected to provide another significant push to the ‘Make in India’ initiative by encouraging domestic manufacturing and reducing dependence on imports. Key measures may include:

• Special incentives for industries aligned with India’s export goals.
• Policy support for emerging sectors, including electronics, renewable energy, and pharmaceuticals.

Key Takeaways for Stakeholders

The Union Budget 2025-26 will likely prioritize economic growth, fiscal discipline, and welfare measures. While maintaining a focus on medium-term fiscal stability, the government aims to boost domestic demand, encourage investments, and enhance infrastructure development.

With a strong emphasis on rural and social welfare spending, coupled with initiatives for industrial growth, the upcoming budget is poised to align with India’s long-term economic vision.

Stay tuned for the detailed announcements on February 1, 2025, as the government outlines its fiscal roadmap to achieve sustainable growth.