Estimated sources and value of revenue:
(Values in lk.cr.) Above is an AI-generated estimate of ~35–39 lk.cr. Expected to be collected in FY26 (Impact of GST reforms on reduced collections) baked in above. Source: Grok
Revenue is expected to be flat; ongoing stabilization of direct and indirect taxation is expected.
(Values in lk.cr.)
Below are points to consider based on ongoing and announced spending priorities:
- Debt control — Interest payouts remain 30%+ of total budget. This will be in line with fiscal deficit (4–4.3%) and inflation (2–2.5%) targets factoring in 100bps rate cuts through the year.
- Road, Transport, Highways, Railways will remain a priority to drive consumption. Allocation may remain flat (or +5%), with focus on completing existing projects.
- This EY report calls for digitization and simplification of customs documentation and toll transfers to improve tax compliance.
- Subsidies (MNREGA already being repackaged) may come with reductions.
- Transfers to states may increase for rural and SME/MSME programs; subsidy rationalization may reduce allocation to ~7–8%.
- Export incentives to supplement US tariffs on capital goods, textiles, etc., and compensate for import rebate waivers from China.
- Investment in data-centers and AI themes may be partially funded through PLI schemes and FDI encouragement.
Consumption Lifecycle
Given spending priorities, how will the government source incremental revenue?
- Capital Gains Tax — Good chances of simplification: higher STCG, lower LTCG.
- Foreign Investment (Securities) — Government may tax foreign outflows differently; may also affect GIFT city flows.
- Foreign Direct Investment — Tax rules may be tweaked to encourage data-center and AI investments.
- Customs and Trade taxation — Depreciating INR makes exports more price-competitive; trade taxation and digitisation reforms likely.
- EPFO & NPS — Further loosening of investment thresholds to provide liquidity in shallow corporate bond markets.
