Union Budget’s Income Side: A Deep Dive into Revenue Trends and Tax Policy Implications

Objective: Understanding Revenue Trends and Policy Impacts

The revenue side of the Union Budget is a crucial determinant of the government’s fiscal health and its ability to finance ambitious economic and social programs. This article analyzes the tax and non-tax revenue trends in the 2023-24 Actuals (AE), 2024-25 Budget Estimates (BE), and 2025-26 Budget Estimates (BE) to understand the expected growth trajectory. Additionally, we scrutinize the 2024-25 Revised Estimates (RE) vis-à-vis 2024-25 BE to assess any shortfalls or unexpected revenue gains. Finally, we discuss how income tax rebates and new tax rates will impact the government’s revenue projections for 2025-26, especially in terms of direct tax collections.

A clear understanding of these numbers is essential to evaluate the feasibility of the revenue projections, the effectiveness of taxation policies, and whether the government’s expectations are realistic amid evolving economic conditions.

Comparing 2023-24 AE, 2024-25 BE, and 2025-26 BE: Growth and Expectations

The government’s revenue model is primarily built on tax collections—both direct (corporate and income tax) and indirect (GST, excise, customs duties)—along with non-tax revenue sources like dividends from public sector enterprises and interest receipts.

Between 2023-24 AE and 2024-25 BE, the government anticipated an 11% growth in gross tax revenue, signaling confidence in increased compliance and economic expansion. Notably, income tax and corporate tax collections were expected to see double-digit growth, driven by wage expansion, business profitability, and formalization of the economy. However, while gross tax revenue was projected to rise further in 2025-26 BE, the pace of growth is expected to be slightly slower compared to the previous year.

Income tax collections (covering individuals and businesses) are expected to see a 14.4% rise in 2025-26 BE compared to 2024-25 RE. This significant increase could be linked to higher tax compliance, economic expansion, and the impact of revised tax policies.

GST collections, a major contributor to indirect tax revenues, have maintained steady growth across these years, reflecting stable consumption patterns and improvements in tax administration. Meanwhile, customs and excise duties have seen marginal increases, suggesting a cautious approach in adjusting import duties and industrial levies.

On the non-tax revenue side, government receipts from dividends and profits have become a critical contributor. For 2024-25, this was significantly revised upward due to strong PSU and RBI contributions. The momentum is expected to continue in 2025-26, further strengthening the government’s fiscal position.

Overall, the income side of the budget reflects optimism in economic recovery and tax buoyancy, though much depends on actual economic conditions and compliance levels in the coming fiscal years.

2024-25 BE vs. 2024-25 RE: Course Corrections and Missed Targets

While the budget estimates (BE) offer projections, the Revised Estimates (RE) provide a reality check based on mid-year revenue performance. Comparing 2024-25 BE with 2024-25 RE, there are a few critical observations:

Gross tax revenue remained nearly in line with projections, with only a slight upward adjustment. This indicates that the government’s expectations for tax collections were largely accurate, despite external economic uncertainties.
Corporate tax revenue was revised downward, suggesting that corporate profitability may have been impacted by slower-than-expected economic activity or sectoral slowdowns. This shortfall in corporate tax suggests that businesses may not have expanded or reported profits as aggressively as initially projected.
Income tax revenue exceeded the budget estimates, showing stronger-than-expected wage growth, formalization of employment, and higher tax compliance. The increase in individual income tax receipts signals a broadening of the tax base, possibly due to better tax administration and digital tracking of transactions.
Indirect tax collections, especially GST, matched the original budget projections, reinforcing its role as a stable and predictable revenue source. However, customs and excise duties saw minor downward revisions, possibly due to policy-driven rate adjustments or lower-than-expected import volumes.
Non-tax revenue was slightly lower than anticipated, even though dividends and profits from public sector enterprises remained strong. The downward revision in other non-tax components, such as interest receipts, could indicate lower-than-expected repayments from borrowers or adjustments in government asset monetization strategies.

These adjustments in 2024-25 RE highlight that while direct taxes performed better than expected, corporate tax collections were weaker, and certain indirect tax sources had to be revised downward. The ability to balance these fluctuations will be key to ensuring that revenue targets for 2025-26 are met.

Impact of Income Tax Rebate and New Tax Rates on 2025-26 BE

One of the most debated aspects of this budget cycle is the impact of income tax rebates and revised tax slabs on the government’s revenue projections for 2025-26. While tax relief measures provide benefits to individual taxpayers, they also pose challenges for revenue generation.

Higher exemption limits mean that a larger segment of taxpayers will either fall into lower tax brackets or escape taxation altogether. This could result in an initial revenue loss from the personal income tax segment. The expectation is that higher disposable incomes will boost consumption, which in turn could contribute to increased GST revenue.

Expected Net Impact on 2025-26 BE:

The government is betting on higher compliance and increased economic activity to compensate for the revenue foregone through tax reliefs.
The formalization of the workforce, digital tax tracking, and improved compliance measures are expected to bring in additional taxpayers, helping to offset any losses from reduced tax rates.
If the economy expands as projected, the rise in employment and salaries could still push income tax collections higher, despite lower effective tax rates.

This delicate balance between tax relief and maintaining revenue growth will be a crucial factor in determining whether 2025-26 BE’s income tax projections are realistic or overly optimistic.

Conclusion: Optimism with Underlying Challenges

The revenue side of the budget presents a picture of steady growth, bolstered by higher tax compliance, digital tracking, and a maturing GST framework. The comparison between 2023-24 AE, 2024-25 BE, and 2025-26 BE shows an encouraging trend of rising tax revenues, despite some mid-year adjustments reflected in 2024-25 RE.

However, the government’s reliance on higher compliance and economic expansion to offset the revenue impact of tax rebates remains a key challenge. While taxpayers will benefit from revised slabs and deductions, the net effect on tax collections will depend on the pace of economic growth, workforce formalization, and the ability to maintain corporate tax buoyancy.

If the projections for 2025-26 are to be met, the government must ensure that compliance efforts remain robust, digital tax enforcement is enhanced, and economic expansion supports revenue growth across all tax categories. Otherwise, the anticipated rise in direct tax collections could face significant headwinds, requiring policy recalibrations in subsequent years.