The government is contemplating reducing tax rates for specific groups of salaried individuals to stimulate consumption, according to a report by Reuters. This potential tax cut is expected to be part of the upcoming budget announcement in July by Finance Minister Nirmala Sitharaman, as reported by two government officials.
India's economy showed robust growth of 8.2% in the fiscal year 2023-24. However, consumption growth lagged behind at half that rate.
Prime Minister Narendra Modi has indicated that the government's objective is to enhance savings among the middle class and improve their overall quality of life.
The proposed tax relief is likely to benefit individuals earning more than Rs 15 lakh annually, although the exact extent of the tax reduction is still under consideration.
This potential revision would modify the tax structure introduced in 2020. Currently, income up to Rs 15 lakh is taxed at rates ranging from 5% to 20%, with income exceeding Rs 15 lakh taxed at 30%.
One source highlighted the significant tax rate hike as income escalates from Rs 3,00,000 to Rs 15,00,000.
The government is also exploring the possibility of reducing tax rates for those earning around Rs 10 lakh annually. Discussions are underway regarding a new threshold for the highest tax rate of 30% under the previous tax regime.
In terms of economic impact, lowering tax rates for these income brackets could potentially stimulate both consumption and savings within the middle class.
A second source suggested that any potential decrease in tax revenue could be partly offset by increased spending from these earners.
Despite these potential adjustments, the government remains committed to maintaining fiscal discipline. The federal government has set a target fiscal deficit of 5.1% of GDP for the financial year ending March 2025.
