Income Tax Cuts Likely To Fuel Economic Growth During FY26

The central government has announced a landmark new Income Tax Bill aimed at easing financial burdens on the middle class. With the nil tax slab raised to Rs12 lakh from Rs7 lakh and rationalisation of TDS/TCS provisions, taxpayers can expect significant savings

The central government has announced a host of measures in the New Income Tax Bill, which the Finance Minister Nirmala Sitharaman proposes to introduce next week.

Talking to Bizz Buzz, Abhishek Aneja, a New Delhi-based tax expert, says, “The Finance Minister has really opened her purse for the first time in all the budgets she has presented so far. The budget focused on supporting the agriculture, rural, and MSME sectors and conveyed a message of working closely with the State governments”.

The middle class, especially the salaried ones, must be very happy with the tax exemption limits rising to Rs 12 lakh. A lot of rationalisation in the TDS and TCS provisions has also been announced, he said.

The industry has also not been left out, with significant rationalisation in the customs tariffs.

Deepak Sood, Partner and Head Fixed Income, Alpha Alternatives, says, “The tax relief for the middle class is expected to drive consumption-led growth, providing a much-needed boost to the economy. On the capital expenditure front, the outlay of Rs11.2 lakh crore appears modest. While gross borrowings through dated securities stand at Rs14.82 lakh crore (net Rs11.54 lakh crore), slightly higher than anticipated, the government’s commitment to fiscal prudence is evident in the lower fiscal deficit target of 4.4 per cent of GDP. Notably, the endeavour is to keep the fiscal deficit each year at a level that ensures central government debt remains on a declining path as a percentage of GDP. This disciplined approach is complemented by key reforms in taxation, power, and urban development to drive long-term growth.”

The economy is projected to expand by 6.5 per cent-6.8 per cent in the next financial year, supported by structural reforms and strategic investments. Against this backdrop, expectations of a rate cut in the upcoming RBI MPC meeting on February 7 have strengthened. Lower policy rates and reduced lending costs should further support economic momentum. We remain optimistic about the fixed income space, anticipating a downward trend in interest rates, he said.

The Bill is likely to be clear and direct in text with close to half of present law in terms of chapters and words. It will lead to tax certainty and reduced litigation.

Shiva Kumar, former managing director, State Bank of Bikaner & Jaipur, says, “Every Budget has to pay way for Viksit Bharat 2047. Year 2025 budget passes this test with flying colours. There is a lot for famers and middle class in higher credit and lower tax structure. Medical convenience to ill, especially cancer patients is visible. Employment opportunities will emerge by enhancing tourism in top 50 centres and adding 120 new destinations to Udan.”

Nuclear energy gets recognition. Nirmala Sitharaman has kept focus on accelerating growth and inclusivity. She has to continue deregulating to lower the cost of business, he said.

Tax-free income limit has been raised to Rs12 lakh from Rs7.5 lakhs at present, which will provide a huge relief to the middle class.

For those with above Rs 25 lakh income, the new slabs will save Rs 1.25 lakh in taxes. For starters, the new Bill will be half of the present Income Tax law in terms of chapters and words. Now, you can file income tax returns for past 4 years in ITR U.