Budget 2025: Sitharaman targets higher tax revenue in FY26 to help lift growth

India Budget: Finance Minister Nirmala Sitharaman proposed in the Budget 2025 to increase the collection of direct and indirect taxes for the next fiscal year starting April 1. The move to raise tax collection targets reflects hope for a boost in income and consumption in an economy which however is seen to post a four-year low growth in this fiscal.

Sitharaman on February 1 presented the Budget for the next fiscal year.

New Delhi aims to raise gross tax revenue of Rs 42.70 lakh crore in the coming fiscal, up 11% from revised Rs 38.53 lakh crore targeted for fiscal 2025. The government had earlier forecast gross tax revenue of Rs 38.40 lakh crore in this fiscal year.


The Budget now eyes to raise Rs 25.20 lakh crore and Rs 17.50 lakh crore in direct and indirect taxes, respectively, up from revised Rs 22.37 lakh crore from direct taxes and Rs 16.16 lakh crore from indirect taxes projected for fiscal 2025.

Income tax collections forecast to rise 14.4% to Rs 14.38 lakh crore while the government expects corporate tax to be 10.4% higher at Rs 10.82 lakh crore.

Higher tax collection is expected despite the Budget announcing mega tax benefits for the middle class. As per the rejig in income tax plan, for people earning more than Rs 12 lakh per annum, there will be nil tax for income up to Rs 4 lakh, 5 per cent for income between Rs 4 and 8 lakh, 10 per cent for Rs 8-12 lakh, 15 per cent for Rs 12-16 lakh. A 20 per cent income tax will be levied on income between Rs 16 and 20 lakh, 25 per cent on Rs 20-24 lakh and 30 per cent above Rs 24 lakh per annum. A tax payer in the new regime with an income of Rs 12 lakh will get a benefit of Rs 80,000 in tax. A person having income of Rs 18 lakh will get a benefit of Rs 70,000 in tax.

In the fiscal 2025 Budget announced in July last year after the Lok Sabha polls, gross tax revenue for fiscal 2025 was estimated to rise 11.72% from fiscal year 2024’s Rs 34.37 lakh crore.

Higher tax kitty for fiscal year 2026 will provide the government a much-needed shot in the arm to stick to the fiscal glide path, crucial for its pitch to rating agencies for a promotion in sovereign rating. The higher tax collection will also help the government channelise funds to capital expenditure, subsidies and welfare schemes.

India's net direct tax collections, comprising corporation tax and personal income tax, rose about 16% on year to Rs 16.90 lakh crore in this fiscal year as of January 12. Net corporate tax collections reached Rs 7.68 lakh crore, up from Rs 7.10 lakh crore in the same period last fiscal year. Meanwhile, net non-corporate tax receipts, primarily from personal income tax, surpassed Rs 8.74 lakh crore since April 2024.

The government collected ₹19.58 lakh crore as net direct tax in 2023-24, 17.1% more than in the previous fiscal and exceeding the revised estimates by ₹13,000 crore. India had raised Rs 16.64 lakh crore net direct tax in FY23 and Rs 14.08 lakh crore in fiscal 2022.

While a K-shaped economic recovery in India is seen to be a strong trend, according to several economists, the economy has also beaten almost all countries in terms of rising wealth, according to a Credit Suisse-UBS report. Richer India has also helped in tax collections and is likely to add more to the tax coffers with predictions of higher ultra HNIs and billionaire population.

In FY23 and FY22, indirect tax collections stood at Rs 13.94 lakh crore and Rs 12.94 lakh crore, respectively.