Budget Outlook 2026: Will tax rates be cut or increased?

Axis Bank Chief Economist and Axis Capital Global Research Head Neelkanth Mishra has shared his views on the upcoming Union Budget 2026, discussing where the government should focus, the likelihood of tax rate changes, and key priorities for the economy. Mishra said the government should continue its focus on fiscal consolidation.

“The government has set a roadmap to bring down central government debt to 50 per cent of GDP by 2031. I think it will follow through. Fiscal deficit, which was 4.4 per cent, is expected to be around 4.2 per cent in 2026-27. This is likely to be the target,” he said.

Tax Outlook and Government Focus

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Regarding taxes, Mishra indicated that increases are unlikely. “There is little scope to raise taxes. Corporate taxes were reduced earlier and the effect is showing now.

Personal income taxes are also unlikely to see significant hikes. There are reports about benefits through family collective filing, but they are not macroeconomically significant,” he said.

Mishra suggested that rather than raising taxes, the government should focus on disinvestment and expenditure efficiency.

“Expenditure growth should be aligned with normal GDP growth, around 10 to 11 per cent, particularly for infrastructure and capital expenditure,” he said.

He added that government salaries and pensions could rise significantly next year due to arrears from the newly notified 7th Pay Commission, which may limit fiscal expansion this year.

Commodity Taxes and Export Impact

When asked about potential changes in commodity transaction taxes due to rising gold and silver prices, Mishra said minor adjustments are possible. “Speculative interest has risen in gold and silver.

The government may make small changes in commodity taxes, but major tax rates are unlikely to change. The policy focus is on tax certainty, not frequent changes,” he said. Mishra also commented on the impact of the 50 per cent US tariffs on Indian exports.

“Since the tariffs were imposed, overall exports have accelerated. Many categories were equally affected by Section 232 tariffs, but exports continue to grow. The US Supreme Court may soon rule some tariffs unconstitutional. Until then, the government does not need drastic budget measures,” he said.

Credit Support and Budget Strengtheners

He suggested that the government could extend credit guarantee schemes for MSMEs. “The financial system now has more capacity to provide credit. By expanding guarantees, smaller businesses can get better access to loans.

During COVID-19, the ECLGS scheme cost only around Rs 17,000 crore but supported loans worth six to seven lakh crore. A similar approach can support credit growth without major fiscal burden,” Mishra said. On what could make the budget very strong or weak, Mishra highlighted two areas.

“First, consolidating PSU holdings into a single fund or showing a credible roadmap for disinvestment and privatisation could excite markets. Second, urban infrastructure investment needs more support. Expanding programs like the Urban Challenge Fund and accelerating spending on national highways would be very positive,” he said.

Budget Presentation Details

Mishra concluded that the government should balance fiscal prudence with growth support. “The focus should be on controlled expenditure, strategic disinvestment, and targeted infrastructure and credit measures. Tax rates are unlikely to change significantly this year,” he said.

The Union Budget, which shows the Government of India’s plan for the next financial year, will be presented in Parliament on Sunday, February 1, 2026, at 11 am. This is the first time in history that the budget will be presented on a Sunday, following the February 1 tradition of recent years.