Tax Revenue Assumptions Seem Optimistic

The Union Budget for FY26 attempts to strike a balance between supporting economic activity and fiscal consolidation, which is quite commendable given the country's current macroeconomic situation and the uncertain global environment.

- Aditi Nayar Chief Economist, Head-Research & Outreach, ICRA

While a broad look at the budget math suggests that the numbers seem credible, there are a few areas of concern.

The assumption for the nominal GDP growth of 10.1% in FY26 seems plausible and is similar to ICRA's estimate of 10.0%. However, the growth in gross tax revenues of 10.8%, which implies a tax buoyancy of 1.1, seems a bit high, given the sizeable relief that was announced on the personal income tax front. The government's assumption of 13.1% expansion in income tax collections (excluding STT) in FY26 is quite substantial, in light of the tax cuts, which are expected to lead to a revenue loss of ₹1 trillion (₹1 lakh cr). Besides, the base is also high; the projected growth in such collections is pegged at 18.9% for FY25 as per the revised estimate (RE).