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India is weighing a proposal to cut income tax for individuals earning up to Rs 1.5 million ($17,590) annually in its upcoming budget, aiming to ease the financial burden on the middle class and stimulate consumption amid a slowing economy, Reuters reported citing two government sources.
The sources said the government has not yet decided on the extent of the tax cuts. A final decision is expected closer to the budget announcement on February 1.
Taxpayers in India currently have the option of choosing between two systems: the older framework, which allows exemptions for expenses such as housing rentals and insurance, and the 2020 system, which offers reduced rates but removes key exemptions.
The exemption would apply to the ’new tax regime’ introduced in 2020. Under this system, incomes between Rs 300,000 and Rs 1.5 million are taxed at rates ranging from 5 per cent to 20 per cent, while incomes exceeding that threshold are taxed at 30 per cent.
India gets a bulk of its income tax from persons earning at least 10 million rupees, the rate for which is 30 per cent.
Who will benefit from the potential tax cut?
The potential tax relief is expected to benefit tens of millions of taxpayers, particularly urban residents facing high living costs. The move, if it comes, may alleviate the anger of the Indian middle-class, upset over the 2024 full budget presented in August this year.
Apart from that, boosting consumption is reportedly a major focus point in the discussions. The context for that is that the Indian economy, the fifth-largest in the world, grew at its slowest pace in seven quarters between July and September.
This was attributed to low domestic consumption and a temporary slowdown in capital expenditure in the country. More money in the hands of the middle class might help rev up the economy.
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