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Informist, Tuesday, Feb. 3, 2026

 

--Fin min source: FY27 tax mop-up aim realistic, not conservative

--Fin min source: See tax buoyancy improving FY27 onwards

--Fin min source: Sticking to FY27 tax aim even after India-US trade deal

--Fin min source: See compensation cess balance INR 20 bln post loan repay

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – The government's revenue collection projection for 2026-27 (Apr-Mar) is "realistic" and not "conservative", a top finance ministry official said Tuesday, adding that following a "base correction" in FY27, buoyancy will improve in subsequent financial years. The tax buoyancy of 0.8 projected in the Budget for FY27 on Sunday takes into account the impact of the changes in Goods and Services Tax rate structure, which added 0.1-0.2 to the buoyancy in earlier years, the official said. 

 

"The tax buoyancy of 0.8 takes into account the change in base happening this year (FY27) from all the tax changes announced in 2025, so once the base correction happens in FY27 – the first full year when all the tax changes play out – we will see buoyancy pick up," the official told Informist.

 

The FY27 Budget projects total tax collections for FY27 at INR 44.04 trillion, up 8.0% from this year. Since nominal GDP growth is assumed at 10%, 8% growth in tax collections points to a tax buoyancy of only 0.8, the lowest in recent years. Tax buoyancy measures how well tax revenue is growing compared to economic growth. A buoyancy of over one means tax revenue is rising faster than GDP growth.

 

In the FY26 Budget, Finance Minister Nirmala Sitharaman had raised the tax rebate limit to INR 1.2 million, effectively meaning that individuals with income of up to INR 1.2 million per year do not have to pay any income tax, resulting in a revenue loss of INR 1 trillion per year. The impact of this played out in FY26 entirely. According to the official, since the impact of the direct tax change is already accounted for in FY26, the buoyancy in direct tax assumed for FY27 is 1.14, which is a "healthier rate".

 

The GST changes announced in September, however, are only reflected in seven months' data for FY26, making FY27 the new base with all revised GST rates. In September, the GST Council overhauled the indirect tax structure, merging the four slabs of 5%, 12%, 18%, and 28% into two slabs of 5% and 18% from Sept. 22. A host of white goods, especially consumer durables such as washing machines and big televisions, were moved to the 18% slab from 28%, thereby lowering the average GST rate on these as well.

 

The government also discontinued the GST compensation cess from Sunday, and that led to some adjustments on the revenue projections, the official added. To recap, the GST compensation cess was introduced to bring states on board to adopt the GST regime in 2017. The Centre had promised to protect 14% per annum revenue growth for states for the first five years by levying a compensation cess on certain luxury goods, including motor vehicles, expensive motorcycles, caffeinated beverages, and sin goods such as tobacco items and pan masala. Initially set to expire in June 2022, the cess was extended until March 2026 to repay INR 2.69 trillion in loans taken by the Centre to partly bridge the revenue shortfall of states during the COVID-19 pandemic.

 

According to the official, after the repayment of loans, the compensation cess fund will have a residual balance of about INR 20 billion, which will be equally distributed between Centre and states. "The distribution will be done by the end of March 2026," the official said.

 

After Sitharaman presented her ninth Budget on Sunday, experts unanimously said that the government has perhaps estimated its tax collection target for FY27 on the "conservative" side, which may also take into account economic slowdown triggered by external factors. One of those external factors was the India-US trade deal and that has been addressed with US President Donald Trump's announcement Monday that Washington and New Delhi have agreed on a trade pact, under which US will cut its reciprocal tariffs on Indian goods to 18% from 25%. Trump also said India agreed to stop its energy purchase from Russia, which means the punitive 25% tariff also stands slashed.

 

The finance ministry official said that while economic activity could improve following the trade deal in FY27, there may not be a one-on-one correlation with revenue collections. "The announcement is very positive for India's economic growth and activity, and that should ideally result in better revenues," the official said, adding that "there is no one-on-one correspondence to revenues particularly". "So, as of now, we are sticking to the Budget numbers," the official said.   End

 

Edited by Ashish Shirke

 

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