Union Budget 2026: Balancing Tax Relief and Fiscal Discipline

The Union Budget for FY2026 is anticipated to provide minor relief for personal income taxpayers, says an ICRA report. The measures are designed to maintain stable revenue inflows and economic growth, amidst projected increases in both direct and indirect tax collections, along with a strategic focus on capital expenditure.

An ICRA report suggests that the Union Budget for FY2026 is likely to offer modest relief for personal income taxpayers. However, these measures are not expected to substantially impact revenue collections, as the government aims to keep tax inflows stable and predictable.

The report estimates a 12% growth in direct tax revenues, propelled by rising income and corporate taxes. Indirect taxes are projected to grow by 9%, with GST collections increasing by 10.5%. Despite uncertainty due to potential US tariff changes, customs duty inflows are expected to grow at 5%. Gross tax revenue for FY2026 is anticipated to slightly exceed nominal GDP growth, indicating a tax buoyancy of 1.1.

The fiscal deficit is projected to rise to Rs 16 trillion, compared to Rs 15.4 trillion in FY2025. However, as a GDP percentage, it is expected to decrease to 4.5% from 4.8% due to fiscal consolidation. Capital expenditure is set at around Rs 11 trillion, maintaining the focus on manufacturing, employment generation, and skill enhancement.

(With inputs from agencies.)