Former economic director Krishnamurthy V Subramanian has greeted the income tax cuts (chest) announced in the 2025-26 budget, calling that its impact on the economy is “enormous”. Reaving the passage of Finance Minister Nirmala Sitaraman to exempt annual revenue up to 12 Lakh of the income tax under the new regime, Subramanian designed a significant momentum for both consumption and GDP growth.

“The effect of personal income tax (chest) is huge! Detailing their calculations on social media.

Breaking down the numbers, Subramanian emphasized that the tax reduction would directly inject 1 lakh crore into the middle class hands, increasing the available revenue. Given that the middle class normally saves around 20% of its income, estimates that 80% of this additional available revenue will occur in consumption.

Using the consumer multiplier -1/(1 – MPC) formula, where MPC (marginal propensity to consume) is 0.8: Subra calculates a multiplier of 5. This suggests that the tax reduction could push an additional of 5 lakes in consumption. “This year, the increase in consumption is 7.3% with a GDP growth of 6.4%. For FY26, even without the reduction of the pit, it was expected that the growth of consumption was about 7.2%. With the reduction of taxes, we are studying a combined growth of more than 12% in consumption, “he said.

For GDP, Subramanian estimates that tax reduction will add an additional 2.7% to growth, promoting the increase in 6.3% projected GDP (without tax reduction) to 9%. Even by counting the potential overestimation, it provides conservatively the growth of GDP to more than 8%.

The Sitharaman’s budget announcement also included a standard deduction, increasing the taxpayer without taxpayers for salaried taxpayers to 12.75 RS lakes. The movement is expected to benefit millions of middle-class individuals, giving them more expense power and, as Subramanian suggests, potentially promoting a financial increase in consumption.