Tax cuts to spur discretionary consumption especially among salaried people: Report

New Delhi: Fiscal consolidation glide path is maintained with the Union Budget and tax cuts should spur discretionary consumption especially among the salaried class, a report showed on Tuesday.

While reaffirming its commitment to fiscal consolidation, the government has tried to stimulate consumption through tax cuts. It targets to lower the fiscal deficit to 4.4 per cent in FY26 from the 4.8 per cent it expects in FY25.

“The Budget assumptions look reasonable to us except the one on income taxes, which we find aggressive,” said a BNP Paribas report.

The government has raised the income threshold and relaxed the tax slabs for those in the new tax regime (NTR). About 75 per cent of individuals have already shifted to the NTR and the government expects most of the remaining taxpayers to shift now, resulting in a potential end of the tax exemptions era.

The Budget has focused on reviving consumption by increasing the income threshold and relaxing the tax slabs. This will boost the disposable income of taxpayers in India by 2-7 per cent, depending on the income level.

“We expect this to support discretionary consumption across sectors such as durables, autos, asset management, healthcare, travel and jewellery – all part of our ‘Affluent India’ picks,” the report mentioned.

Higher disposable incomes should also help retail asset quality, especially unsecured.

Overall, taxpayers will have additional disposable income of Rs 2,000-Rs, 10,000 per month, “which we believe could be used for small-ticket discretionary purchases”.

A vast majority of Indian taxpayers are salaried individuals. Among those that had reported annual income upwards of Rs 10 lakh in India, 9.7 million were salaried individuals in FY23. Thus, the benefit will primarily accrue to these individuals.

For FY26, the government has assumed GDP growth at 10.1 per cent, growth in revenue receipts by 10.8 per cent and a rise in expenditure by 7.4 per cent. Subsidies are budgeted to be flat YoY and the biggest increase in revenue expenditure is on the interest outlay, said the report.

–IANS