The waiver on personal income tax for income up to Rs 12 lakh is expected to ease the financial burden on the salaried class, soften the impact of rising prices, thereby drive consumption, analysts and industry experts said on February 1, after the Union Budget was tabled in the Parliament.
The move should provide a major fillip to sectors such as consumer durables, apparels, fast-moving consumer goods (FMCG), jewellery, and automobiles, said experts.
Over the last two years, industry executives across these sectors have flagged off pain from lower discretionary spending by consumers who were hit by inflation. Urban demand, which makes up a significant portion of sales, has been under pressure since late 2022, affecting sales across a wide range of products, from beer to biscuits. Middle-class consumers, squeezed between rising expenses and stiff tax slabs, had started to delay purchases or postpone discretionary spending, leading to slower growth in sectors reliant on consumer spending.
"1 lac crores of personal tax forgone is almost 6% to 8% of total collection. It is a quite significant and "more than expected" and a decently large infusion of liquidity / disposable income in the hands of consumers and tax - payers. This should positively impact urban consumption," said Paresh Parekh, Partner and Retail Tax Leader, EY India.
The FMCG companies, which generate 60% of their revenue from urban consumers, had started to see a spike in the sale of lower-priced units or smaller packets, as consumers became more price-sensitive and focused on essential products.
Companies including textile major Raymond Group and Kalyan Jewellers also hailed the move.
The income tax relaxation announced by Finance Minister Sitharaman in the Budget 2025, is expected to provide a major relief to urban consumption.
"The increase of the no-tax limit from Rs 7 lakh to Rs 12 lakh is a significant step in reducing tax and putting more money back into consumers’ hands. This will provide a much-needed boost to consumption, which has been challenging over the past 1-1.5 years," Ravi Swarup, partner and consumer products practice head at Bain & Company said.
Analysts expect companies like Hindustan Unilever, ITC, Dabur and Nestle to directly benefit from the consumption boost.
.For the retail and jewellery sector, a rise in consumption directly translates into stronger demand, fuelling expansion and employment generation, stated Malabar group chairman MP Ahammed.
"The Union Budget 2025 takes a balanced approach by strengthening rural infrastructure, manufacturing, and consumer spending—three critical pillars for the FMCG sector. Investments in rural development and job creation will boost economic activity and drive higher consumption, opening new opportunities for market expansion," said Aasif Malbari, Chief Financial Officer, Godrej Consumer Products.
Malbari added, "..tax reforms benefiting the middle class will increase disposable income, further fuelling demand across essential and aspirational FMCG categories. Budget lays a strong foundation for a more consumption-driven economy, creating significant growth opportunities for the FMCG industry."
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