Union Budget 2025-26: Fiscal Anchor and Tax Relief Takeaways
Why in the news
The big feature of Budget 2025-26 was personal income tax relief to lift consumption, alongside a new fiscal anchor based on the debt-to-GDP ratio.
Key facts
- Gross Fiscal Deficit: 4.4% for FY26, better than the 4.5% target set in 2021.
- Fiscal anchor: debt-to-GDP ratio of 50% by March 2031.
- Pulses mission: six-year Aatmanirbharta effort on tur, urad, masoor; pulses prices are volatile and feed food inflation.
- Government capital spending is almost unchanged from last year’s Budget Estimates.
Corporate tax and investment
| Indicator | Figure |
|---|---|
| Corporate tax share in revenue receipts, FY19 | 42.7% |
| Corporate tax share, FY26 (BE) | 31.6% |
- 2019 corporate tax cuts have not lifted collections.
- Private capex is still weak; if firms do not invest, macro problems could follow.
Centre-state finances
- Centrally Sponsored Schemes allocation up 30.5% in FY26 but only 7.6% on a BE-to-BE basis.
- Tied transfers (Article 282) to untied transfers (Articles 270/275) ratio: 34.8%, reversing a falling trend.
- CSSs limit state spending freedom and weaken fiscal independence.
Concerns
- A sharp rise in interest rates could upset debt-to-GDP projections.
Exam angle
- New fiscal anchor: debt-to-GDP 50% by March 2031.
- Articles: 282 (tied), 270/275 (untied).