Tax buoyancy lowest since Covid – Money News | The Financial Express

Clipped from: https://www.financialexpress.com/money/tax-buoyancy-lowest-since-covid-4127896/

At Rs 44.04 lakh crore, gross tax revenue target modest; strategic sectors get customs duty relief

India’s Budget 2026-27 projects gross tax revenue at ₹44.04 lakh crore, signaling a conservative 8% growth and a post-pandemic low tax buoyancy of 0.8.

The budget for 2026-27 projects a modest target for gross tax revenues at Rs 44.04 lakh crore, a growth of 8% over the revised estimates for FY26. This compares with a growth of 7. 4% in FY26 (revised estimates over actual in FY25), with the tax buoyancy at around 0.9. Tax buoyancy for FY27, at below 0.8, is the lowest since the pandemic.

Customs duty cuts are to be implemented for several critical sectors though there has been no broad-based rationalisation of tariffs. The sectors for which customs duties have been lowered include nuclear energy, defence and aerospace, clean energy, critical minerals, electronics and medical devices. These cuts, GTRI’s founder Ajay Srivastava said, would lower manufacturing costs.

Union excise duties are estimated to grow at 15.56% to Rs 3.88 lakh crore in FY27, higher than 12% growth estimated for FY26. The government has also pegged 6.32% growth in Central GST collections to Rs 10.19 lakh crore for FY27, in comparison to 5.45% in FY26.

Revenue Realism

Ranen Banerjee, partner and leader, economic advisory, PwC India feels the government has possibly been conservative on tax projections to build in a cushion in the event nominal GDP growth undershoots expectations.

Personal income tax (PIT) collections are set to increase to Rs 14.66 lakh crore, an 11.74% growth compared to a rise of 6.22% in FY26. Corporation tax revenues are projected to grow at 11% to Rs 12.31 lakh crore in FY27, nearly one percentage point lower than in FY26. Revenues from customs duties are estimated to grow by 5% to Rs 2.71 lakh crore against a growth of 10.76% in FY26.

Sunil Badala, partner, national head of tax, KPMG said the low buoyancy could have an impact on meeting the fiscal deficit target. “The government has controlled expenditure and set a modest fiscal deficit target, but from a long run perspective, the tax buoyancy has to do better than what it is today,” Badala said, underscoring the need to increase tax base.

He cited goods and services tax (GST) rate rationalisation and income tax benefits given to individuals to boost consumption along with less overall corporate tax collections, including from foreign investors and foreign companies, as the reasons for the decline in tax buoyancy.

Banerjee said the high growth in PIT reflects a normalisation of the base after FY26 effects, returning to the typical 11-12% range driven by salary increments among taxable earners.

Targeted Relief

Meanwhile, for consumers, there’s relief as 17 cancer drugs and medicines have been exempted from customs duties and seven more rare diseases have been added to the list for duty exemption on personal imports of drugs, medicines and food for special medical purposes. For travellers bringing in goods for personal use, duties will be reduced to 10% from 20%. 
According to Bipin Sapra, partner and indirect tax policy leader, EY India, the tariff rationalisation and duty cuts may impact collections. Moreover, duty concessions in free trade agreements would also have an impact, he said. 

Duties have been eliminated on nuclear-generation equipment, absorber rods, and project imports for all nuclear plants registered with customs authorities through September 2035, providing certainty for large, long-gestation projects. This comes after the government allowed private and foreign participation in the nuclear energy sector through the SHANTI Bill. 
Customs duties have also been removed on raw materials for manufacture of parts of aircraft for maintenance, repair, or overhauling of aircraft or components or parts of aircraft, including engines, when imported by public sector units under the Ministry of Defence.

In critical minerals, customs duty on monazite has been cut to zero. In electronics, inputs for microwave ovens and video-game consoles are exempted, encouraging deeper domestic value addition. Medical-device makers gain duty-free access to X-ray tubes & flat-panel detectors used in diagnostic equipment.