Tax Cuts in Union Budget to Boost Discretionary Consumption Among Salaried Individuals, Says Report
The Union Budget's tax cuts are expected to boost discretionary consumption, particularly among salaried individuals, by increasing disposable income. Learn how this will impact sectors like autos, healthcare, and durables.
New Delhi: The recent Union Budget has introduced tax cuts aimed at stimulating discretionary consumption, particularly among salaried individuals, according to a report by BNP Paribas.
The report highlights that the fiscal consolidation path remains intact, with the government’s goal of reducing the fiscal deficit to 4.4% of GDP in FY26, down from an estimated 4.8% in FY25.
These tax changes are expected to boost the disposable income of Indian taxpayers, leading to a rise in spending on non-essential goods and services, benefiting various sectors.
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Union Budget Focus: Tax Cuts to Revitalize Consumption
The Union Budget for FY25 has made significant efforts to drive economic growth through fiscal consolidation while targeting increased consumption. The government has opted for tax cuts that will directly benefit salaried individuals by raising the income threshold and relaxing tax slabs for those in the New Tax Regime (NTR).
According to the report, the majority of Indian taxpayers, approximately 75%, have already migrated to the NTR, and the government expects the remaining taxpayers to follow suit. This move is poised to mark the potential end of the tax exemption era, where individuals could rely on exemptions and deductions to lower their tax liabilities.
Impact of Tax Cuts on Disposable Income
The introduction of these tax cuts is expected to enhance disposable income for Indian taxpayers by 2-7%, depending on their income level. This increase in disposable income will have a direct impact on consumer behavior, particularly in discretionary spending across various sectors.
The sectors likely to benefit from this increased consumption include durable goods, automobiles, asset management, healthcare, travel, and jewelry. As a result, the report mentions that the “Affluent India” sector, which encompasses individuals with higher purchasing power, will see substantial growth.
Higher disposable incomes will also positively influence retail asset quality, particularly in the unsecured loans segment. As taxpayers enjoy additional income, a portion of it is expected to be used for small-ticket discretionary purchases, ranging from Rs 2,000 to Rs 10,000 per month.
Beneficiaries of Tax Cuts: Salaried Individuals
The primary beneficiaries of the tax cuts will be salaried individuals, especially those with annual incomes above Rs 10 lakh. According to the latest data from FY23, about 9.7 million salaried individuals in India reported annual earnings above this threshold.
As a significant proportion of Indian taxpayers are salaried workers, the benefit of these tax cuts is expected to have a wide-reaching effect on this demographic, further boosting consumption in the economy.
Economic Assumptions and Government Goals
The government has set ambitious economic targets for FY26, assuming a GDP growth rate of 10.1%, a growth in revenue receipts by 10.8%, and a 7.4% rise in expenditure. Despite the fiscal constraints, subsidies are projected to remain flat year-over-year, with the largest increase in revenue expenditure allocated to servicing interest outlays.
These assumptions, according to the BNP Paribas report, appear to be reasonable, except for the government’s aggressive stance on income tax expectations.
