Financial services provider Barclays on Thursday said the government should announce ‘impactful’ cuts in personal income tax in the Budget for financial year 2025-26 to boost consumption and demand. Barclays said before the Union Budget to be presented on February 1 that the main demand from this budget is to support economic growth along with following the path of fiscal consolidation.
Barclays expects Finance Minister Nirmala Sitharaman to announce changes in the provisions of the new tax regime to make it more attractive to taxpayers. In the last Budget, the government had increased the standard deduction for salaried taxpayers to Rs 75,000 and the deduction on family pension for pensioners to Rs 25,000 under the new tax regime, which offers a lower rate of taxes.
Barclays said another possible option to boost disposable income and purchasing power while controlling inflation could be to cut excise duty on fuel. Despite the decline in international crude oil prices, retail prices of fuel have remained almost stable since 2022. Along with this, Barclays said that the announcements of customs duty in the budget will be important to understand the reaction of the government regarding the duty after the Trump administration comes to America.
Barclays India’s Chief Economist (India) Aastha Gudwani It said in a statement that in an effort to support consumption, the Finance Minister should make a ‘significant’ cut in the personal income tax rate by changing the tax slabs. By doing so, there is no possibility of the fiscal cost increasing much. “The tax increase under this announcement will compensate for the shortfall in revenue. “We feel there is a need to boost consumption, especially with private investment now awaiting a surge in demand.”
In the last Budget, the government had increased the standard deduction for salaried taxpayers to Rs 75,000, and the deduction on family pension for pensioners to Rs 25,000 under the new tax regime, which offers a lower rate of taxes. In the new tax system, exemption has been given on income up to Rs 3 lakh. Those earning Rs 3-7 lakh annually will have to pay 5 percent tax, Rs 7-10 lakh (10 percent), Rs 10-12 lakh (15 percent), Rs 12-15 lakh (20 percent) and more than Rs 15 lakh. (30 percent).
Barclays expects the government to meet the fiscal deficit target for the current fiscal year by 20 basis points, which will be 4.7 per cent of GDP, and the deficit for 2025-26 at 4.5 per cent of GDP, or about Rs 16.3 lakh crore. Will be Rs. These rules have been kept in abeyance since the pandemic struck in FY 20-21, with the government only outlining the fiscal deficit target for FY 25-26. Barclays expects nominal GDP growth of 10.5 per cent in FY2026, up from 9.7 per cent projected in FY2024-25. Barclays said it is awaiting the debt consolidation roadmap from FY26-27 to see when the finance minister reduces the general government debt-to-GDP target to 60 per cent.
The Finance Minister, in his 2024-25 Budget speech, had said that from 2026-27 onwards, the fiscal policy effort will be to maintain the fiscal deficit in such a way that central government debt continues to decline as a percentage of GDP. According to fiscal rules, general government debt should be 60 percent of GDP, with a ratio of 2:1 between the Center and states. This would mean that the central government would have to reduce its debt from the current 57 percent to 40 percent in the medium term.
Gudwani said that in this budget, we will also keep an eye on the government’s proposed medium-term goals, as mandated under its fiscal responsibility law. We expect a number of changes to the customs duty structure, particularly on items where dumping concerns from China are increasing (e.g., steel, glass, base metals). “We expect a marginal increase in customs duty collections in FY 25-26 compared to FY 24-25.”