India is considering reducing income tax for people earning up to ₹15 lakh annually in the upcoming February Budget, aiming to provide relief to the middle class and stimulate consumption amid an economic slowdown, news agency Reuters reported citing two government sources.
If implemented, the proposal could benefit millions of taxpayers, particularly urban residents facing high living expenses. The relief would apply to those opting for the 2020 tax regime, which excludes exemptions such as those for housing rentals. Under that system, annual income of ₹3 lakh to ₹15 lakh is taxed at between 5% to 20%. Higher income draws 30%.
HT.com couldn’t independently verify the information.
This is primarily to boost personal consumption and provide some relief to the middle class, potentially benefiting tens of millions of taxpayers, especially in cities who are burdened by rising living costs.
India, the world’s fifth-largest economy, grew at its slowest pace in seven quarters between July and September. It is also marred by high food inflation, biting into demand for consumer goods and even vehicles.
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However, the size of the cut has not yet been fully decided, and the final decision will be made closer to the budget on February 1, 2024, according to the report.
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At the moment, taxpayers can choose between two tax systems; The old regime which allows exemptions on housing rentals and insurance, and the new regime introduced in 2020 which offers slightly lower rates, but doesn’t allow major exemptions.
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According to the report, reducing the tax rate would also encourage more people to choose the new system, which is also less complicated.
The report said that a bulk of India’s current income tax collections come from persons earning at least ₹10 lakh, for which the rate is 30%.