’Personal income tax buoyancy helped to offer relief; states may have deregulations as conditions for capex loans’
Buoyant personal income tax revenue allows tax relief in FY26 budget, according to finance secretary Tuhin Kanta Pandey. States need to implement reforms to qualify for interest-free loans. The Finance Commission will provide a roadmap for reducing state debt to 50% of GDP by 2031.
New Delhi: Robust buoyancy in personal income tax revenue helped offering tax relief to individuals in the FY26 union budget and this is expected to offset the impact of the substantial tax cut, finance secretary Tuhin Kanta Pandey said on Sunday.
In a post-budget interview with Mint, Pandey also said the government's push for deregulation could see them being implemented as mandatory reforms, which states are required to implement to qualify for a share of the Centre’s 50-year interest-free capex loans.
Meanwhile, the 16th Finance Commission, headed by economist Arvind Panagariya, will give guidance on the state government's debt reduction roadmap, with the central government set to reduce the debt-GDP ratio to 50% by March 2031 from the current 57.1%, he added.
Also read | Budget 2024: It’s tax buoyancy that shrank the deficit
A highlight of finance minister Nirmala Sitharaman's budget presented on Saturday was the raising of the tax free income tax limit to ₹12 lakh (or ₹12.75 lakh for salaried individuals, factoring in a basic deduction of ₹75,000).
"The actual tax buoyancy for personal income tax was 2.28 in 2021-22. In 2022-23, it dropped to 1.4, largely due to the lingering impact of covid-19, as the figures reflect returns filed for income earned in 2021-22. However, in 2023-24, the buoyancy surged to 2.65, indicating that tax revenue grew at more than two and a half times the pace of nominal GDP growth," he said.
For 2024-25, the expected tax buoyancy is 2.08, meaning tax revenue is projected to grow at twice the rate of nominal GDP
"For 2024-25, the expected tax buoyancy is 2.08, meaning tax revenue is projected to grow at twice the rate of nominal GDP. However, for 2025-26, the estimate is 1.42, significantly lower due to the tax concessions being made. Overall, for direct taxes, the buoyancy is projected at 1.47 for 2024-25 and 1.25 for 2025-26, combining both corporate and income tax," he added.
State debt under lens
Meanwhile, Pandey said that the 16th finance commission is looking into the issue of state debt, as the Centre works to trim its debt in the coming years.
"The Finance Commission will look into the state debt. As far as the state governments are concerned, we will wait for the recommendations of Finance Commission before we implement it for them," he said.
"The states will give us a fiscal roadmap after the recommendations made by the finance commission," he added.
As of 2023, the combined debt of India's central and state governments was estimated to be 81.6% of the country's GDP—a decline from the peak of 89.6% during the pandemic.
Pandey said that some of the key reforms states need to carry out to avail a portion of the Centre’s 50-year interest-free capex loans may include those related to deregulation, which was a theme of the latest economic survey and the budget.
Also read | Highest direct tax buoyancy in 15 years recorded in FY22 : CBDT
"The conditions attached to it are crucial because if the goal is to encourage action, simply rejecting it due to the presence of conditions (reforms) would not be the right approach," he added.
The Centre's Special Assistance for Capital Investment’ scheme, which has been allocated ₹1.5 trillion for 2025-26 in the latest budget, is linked to certain reforms which states are expected to carry out to receive a chunk of the proceeds.
Stimulating capital
Introduced in 2020-21, the interest-free loan with a tenure of 50 years has played a vital role in stimulating capital spending by states and catalysing the overall economy in the aftermath of the pandemic.
In 2023-24, as many as 26 of the 28 states opted for the loan scheme, with Punjab and Kerala being the exceptions.
Pandey also said that he expects the divestment of the central government's stake in the IDBI Bank to be concluded in 2025-26.
Also read | Centre sets new five-year target to cut debt to half of GDP
"The due diligence process is being carried out rigorously. Bidders must thoroughly assess the company and complete all necessary documentation before financial bids are invited," he said.
"The financial bids might be called before the end of March," he added.
The divestment of IDBI Bank, where the government and Life Insurance Corporation of India (LIC) hold 94.72% stake, was earlier expected to be completed in 2024-25.
However, it has been delayed due to regulatory hurdles, includinga delay caused by the Reserve Bank of India's (RBI) review process.
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Business NewsBudgetNews’Personal income tax buoyancy helped to offer relief; states may have deregulations as conditions for capex loans’
First Published:2 Feb 2025, 05:09 PM IST
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