Budget 2025: Income Tax Cuts and Increased Gold Tariffs anticipated in Upcoming Budget

Mild cuts in personal income tax rates to stimulate spending, as well as a concessional Corporate Tax scheme for manufacturing hubs and FDIs to support the ‘Make in India’ policy, are expected in Budget 2025-26, with the government intending to spur economic growth, according to a report.

“Look for increased customs duties on gold and easier FDI regulations. Some changes to the personal income tax slabs could be made to increase disposable income for the middle-income strata,” the report states.

“We will watch for some sweeteners in personal tax rates, concessional corporate tax scheme for manufacturing hubs/FDIs, possibly higher import tariffs on China-sensitive products, while reducing custom duties on industrial intermediaries,” report added.

The next Budget will follow the government’s achievement of its gross budget deficit objective in FY25 at 4.7% of GDP, up from 4.9% in FY25 (RE), owing to a strong personal income tax revenue stream.

In line with the fiscal glide path, the FY26 budget deficit to GDP ratio will be around 4.5%. According to the report, the government has been overachieving its financial targets in recent years.

According to the report, the net borrowing of government in FY26 will be lower than in FY25, at Rs.11.15 lakh crore, with slight savings expected to cover approximately 24% of the budget shortfall. It also estimates the RBI dividend to be in the similar ballpark as in FY25, about Rs.2.1 lakh crore.

The report states that future policy would continue to be focused on improving medium-term growth potential, particularly increasing investment dynamics while preserving budgetary discipline.

The government is anticipated to focus on maximizing the financial injection to enhance growth while providing further assistance to particular vulnerable sectors of the economy.

Gross taxes are expected to climb by roughly 9%, with a gross tax/GDP ratio of around 11.7%. The report also identifies increasing asset sales (by functional infrastructure monetization, disinvestment, and strategic sales) and improving resource allocation as the least growth-impeding deficit consolidation strategies.

The report further states the spending fraction of revex over capex may be slightly greater than in post-Covid years till FY24, with a concentration on human capital and the agriculture sector.

The emphasis will be on rural spending, which will have a far faster financial multiplier effect, and another leg of the ‘Make in India’ campaign for industry is anticipated. “We expect capex loans to states to be similar to that in FY25, with the biggest increase in allocation seen in Defence,” according to the report.

Furthermore, the report stated that the focus will be on welfare, rural development, affordable housing, MSMEs, and human capital (health and education).