Budget should announce tax cuts for individuals to boost consumption: Barclays

Barclays anticipates FY25-26 Union Budget to focus on supporting growth through personal income tax cuts and fiscal consolidation.

The government in FY26 Budget should announce an "effective" personal income tax cut to support consumption and demand, Barclays said on Thursday (January 23, 2025).

In its FY25-26 Union Budget preview, Barclays said the key ask from the Budget, to be presented on February 1, is to support growth while adhering to fiscal consolidation path.

Barclays India Chief Economist, Aastha Gudwani said in a quest to support consumption, the finance minister should provide an effective personal income tax rate cut by further tweaking the tax slabs. This is unlikely to have a sizable fiscal cost.

"That said, improved tax buoyancy will likely make up for revenue foregone under this announcement. We think a boost to consumption is needed, especially with private investment also now awaiting the increase in demand growth," Mr. Gudwani said.

Barclays expects Finance Minister Nirmala Sitharaman to announce changes to the new tax regime, making it lucrative for more and more taxpayers.

In the last Budget, the government had increased standard deduction for salaried taxpayer to ₹75,000, and deduction on family pension for pensioners to ₹25,000 under the new tax regime, which offers lower rate of taxes.

The new tax regime exempts income up to ₹3 lakh. Those earning annually between ₹3-7 lakh pay 5% tax, ₹7-10 lakh (10%), ₹10-12 lakh (15%), ₹12-15 lakh (20%) and above ₹15 lakh (30%).