Retail, D2C sectors applaud tax reforms for boosting discretionary spending
The tax reforms in the Union Budget 2025 are expected to fuel substantial growth in consumer spending for the D2C and retail sectors, which have been grappling with slow urban demand and consumption amid persistent inflationary pressures.
Finance Minister Nirmala Sitharaman's announcement of changes to personal income tax slabs in the Union Budget 2025 was met with enthusiasm by stakeholders in the D2C and retail sectors, who have been facing sluggish urban demand and consumption amid ongoing inflationary pressures. The move has already prompted founders to realign their targets as a surge in demand seems imminent.
Presenting Union Budget 2025 on Saturday, Sitharaman caught the middle-class taxpayers off guard by keeping the details of changes to personal income tax slabs under wraps until the final moment. The FM unveiled that those earning up to Rs 12 lakh per annum (LPA) need not pay any income tax under the new tax regime from the next financial year (FY26).
“The slabs and rates are being changed across the board to benefit all taxpayers. The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings, and investment,” Sitharaman added.
"Most Indian consumer startups operate in the mass premium category, where even a small increase in discretionary income translates into higher demand. With tax reliefs putting more money in consumers' hands, we expect strong growth in aspirational categories like fashion, beauty, and F&B, accelerating scale for retail startups," said Ankit Agarwal, Managing Partner at Alteria Capital.
"With higher disposable income in the hands of consumers we will definitely see a boost to consumer spends. However hard to say how exactly that additional money gets spent. I think urban singles and young indians earnings less than 12-15L are more likely to spend on new age D2C brands and categories. For other demographics as well, we expect premiumisation to speed up across categories," said Manu Chandra, Founder and Managing Partner of Sauce.vc.
Moreover, higher income among consumers are expected to sustain and further drive existing trends, such as premiumization, the shift towards organic and clean products, and the growing demand for niche, targeted offerings.
"The rationalisation of personal income tax slabs has increased consumers' purchasing power, providing a much-needed, direct boost to demand, particularly in discretionary categories such as FMCG. This aligns with a broader trend in retail, where consumers are increasingly prioritising healthier, higher-quality choices. With more disposable income, the shift toward clean-label, responsibly sourced, organic and wellness-focused products will accelerate, creating a strong opportunity for D2C and retail brands catering to mindful consumption," noted Gaurav Manchanda, Founder & Director, The Organic World.
Investors have also flagged increasing tendency among consumers to use BNPL (Buy Now, Pay Later) schemes to sustain consumption patterns and manage short term liquidity challenges.
"Higher disposable income doesn’t just boost immediate spending—it also strengthens creditworthiness. As BNPL and consumer lending adoption rise, brands in lifestyle, electronics, and premium categories will see increased demand," noted Agarwal.
With higher disposable income, consumers are expected to increase spending on lifestyle, fashion, beauty, and personal care—key segments for D2C brands, said Swati Bhargava, Co-founder of CashKaro and EarnKaro.
Startups are also gearing to tap on the potential increase in demand, aiming to rely on Rs 10,000 crore Fund of Funds for startups to help fulfill their capital needs.
"The Indian D2C and retail ecosystem requires a steady flow of funds to drive R&D, fuel innovations and boost manufacturing. The Fund of Funds will be a key step in providing access to capital to the early and growth-stage startups, said Priyanka Salot, Co-founder, The Sleep Company.
"The additional Rs 10,000 crore towards Fund of Funds for startups will catalyse innovation in sectors and provide much-needed capital for emerging D2C brands, enabling them to scale, invest in technology, and enhance customer experience," said Vidita Jain, Founder at Lab-grown diamond startup, Jewelbox.