Budget 2026: Tax Regime Holds Hidden Home Loan Deductions

Economist Nim projects a notable net tax shortfall for the current fiscal year, citing an unexpected decline in tax buoyancy. Despite this, the government is expected to achieve its fiscal deficit target by leveraging a substantial central bank dividend and implementing expenditure rationalization across capital and revenue spending.

Looking towards FY27, Nim stresses the importance of conservative tax assumptions. Even with continued large dividends from the central bank, the government may need to reduce expenditure by 20 basis points of GDP to meet the projected fiscal deficit target of 4.2%. This fiscal year marks a shift towards debt targeting, with a potential target of 55% of GDP.

Fiscal consolidation is anticipated to be gradual in FY27. Excess central bank dividends are likely to remain a crucial revenue stream. Additionally, higher dividends from oil marketing companies, buoyed by weak oil prices, are expected to offset weaknesses in tax revenue, potentially increasing non-tax revenues by 0.2% of GDP.