Budget 2026 Signals Higher Tax Revenue & Stronger Capital Spending Push

India is projected to record steady growth in gross tax revenue in FY27, reflecting improving economic conditions and sustained fiscal discipline.

A report released by CareEdge Ratings said gross tax collections may rise by 9.6 per cent in FY27. This growth remains slightly below the projected nominal GDP expansion of 10.1 per cent.

The report expects direct tax collections to improve during FY27. Recovery in income tax and corporate tax receipts is likely to support this trend.

Analysts see stabilising earnings and higher compliance as key drivers behind the expected rise in direct taxes.

The government is projected to increase capital expenditure by 10 per cent in FY27. Total capex may reach Rs 12.3 trillion, reinforcing the Centre’s focus on infrastructure-led growth.

The government is likely to set the fiscal deficit between 4.2 per cent and 4.3 per cent of GDP in FY27.

Capex-Led Growth Focus

CareEdge Ratings estimated that the government’s gross borrowing requirement could remain between Rs 16 trillion and Rs 17 trillion in FY27.

Net borrowing is likely to stay in the range of Rs 11.5 trillion to Rs 12 trillion. These estimates indicate continued emphasis on managing debt while funding growth priorities.

The report noted that GST rate rationalisation may affect collections in the short term. Despite this, stabilising consumption is likely to gradually lift GST revenues.

Non-tax revenues have remained robust in the current fiscal year. Higher dividend transfers from the Reserve Bank of India supported this growth. Non-tax revenues rose by 20.9 per cent during the first eight months of FY26.

The RBI dividend transfer is expected to remain elevated at Rs 2 trillion to Rs 2.5 trillion in FY27. This compares with Rs 2.7 trillion transferred in FY26. Non-debt capital receipts may fall short by Rs 0.2 trillion in FY26, the report said.

CareEdge also pointed out that the increase in excise duty on tobacco products from February 1, 2026, could support excise revenue growth in FY27.

Another recent report suggested that Budget 2026 will maintain fiscal prudence. It is expected to prioritise strategic, capex-intensive sectors.

Defence is likely to emerge as the top beneficiary. A pre-budget survey of over 50 investment managers ranked infrastructure second, reflecting confidence in sustained public investment and long-term growth momentum.

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