Budget 2026: Tax Shortfalls Shrink The Government’s Room To Spend | Devina Mehra
As markets head into the Budget with light positioning, concerns are rising over India’s fiscal headroom. The core issue: tax collections are running well below budgeted expectations. While the government assumed nominal GDP growth of over 10% and strong gains in GST, corporate tax and capital market-linked taxes, reality has fallen short. Personal income tax growth has been barely 1%, securities transaction tax has stagnated, and even GST and corporate tax are missing targets. Despite lower refunds cushioning the numbers, overall tax growth is under 8% versus an 11% budget assumption. With nominal GDP growth hovering around 8%, the gap between expectations and actuals is widening, potentially creating a fiscal shortfall of over ₹1.3 lakh crore - severely limiting budget flexibility.
As markets head into the Budget with light positioning, concerns are rising over India’s fiscal headroom. The core issue: tax collections are running well below budgeted expectations. While the government assumed nominal GDP growth of over 10% and strong gains in GST, corporate tax and capital market-linked taxes, reality has fallen short. Personal income tax growth has been barely 1%, securities transaction tax has stagnated, and even GST and corporate tax are missing targets. Despite lower refunds cushioning the numbers, overall tax growth is under 8% versus an 11% budget assumption. With nominal GDP growth hovering around 8%, the gap between expectations and actuals is widening, potentially creating a fiscal shortfall of over ₹1.3 lakh crore - severely limiting budget flexibility.
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