Budget 2024: 56% of Indians want income tax cuts to be weakened BJP-govt’s Budget task

“Nothing is certain except death and taxes” – That, perhaps, is what many Indians are saying as prices continue to rise and they are seeking a change in income tax rates. As Modi 3.0 arrived with a weaker mandate, many believe that a cut in income tax could help the saffron party navigate the current landscape. This sentiment is echoed by India Inc. too, adding to the urgency to let Indians have more cash in hand and boost consumption demand.

In the lead-up to the Budget, ET Online conducted a survey to get a sense of what India is looking for in the upcoming budget. The survey received responses from nearly 9,500 Economic Times readers.

Over 56 per cent of Indians believe that a reduction in income tax is what Finance Minister Sitharaman should prioritise following the BJP’s weakened mandate. Over 37 per cent want the government to address the rising job crisis. Only four per cent suggested offering more cash transfer schemes to farmers and just 2 per cent opted for allocating more funds to Railways.

When it comes to the rationalisation of income tax slabs, over 53 per cent want the government to move Indians to the new tax regime with exemptions for income up to Rs 15 lakh.Over 20 per cent want the government to increase exemptions under Section 80C and other sections in the old tax regime, while over 14 per cent demand extending Section 80C benefits to the new tax regime. More than 11 per cent expect the government to increase tax rates for higher slabs and reduce rates for lower slabs.

Budget, taxes and reliefs

Direct tax collections so far in FY25 have seen a robust increase of nearly 20% from the previous year, amounting to Rs 5.74 lakh crore. This surge is primarily driven by significant growth in personal income tax contributions, which totaled Rs 3.61 lakh crore.

During the interim budget announced on February 1, 2024, the finance ministry projected income tax collections to rise to Rs 11,56,000 crore in 2024-25, reflecting a 13 percent increase. The revised estimate for 2023-24 is 13.5 percent higher than the budgeted amount of Rs 9,00,575 crore.

“With rising prices, taxpayers are pressured to manage their requirements within the resources available. The last few budgets have limited the tax reliefs to the taxpayers using the Simplified Tax Regime. Even today there is a sizable population of tax payers who opt for the old tax regime and who have not seen many tax cuts for the past 2-3 years. Thus a rate cut for such taxpayers will definitely ease their burden,” said Aarti Raote, Partner, Deloitte India.In the absence of significant tax proposals in the interim budget of February 2024, taxpayers are hopeful for positive changes in the upcoming budget. With Finance Minister Nirmala Sitharaman set to present the budget on July 23, anticipation is high. Amid increasing retail inflation, easing financial pressures on the common man would be a welcome move.

Rohit Garg, Partner, Shardul Amarchand Mangaldas & Co., said, “A tax rate cut will have a positive impact on India’s growing economy as a reduction in personal income tax will result in higher disposable income that may lead to higher demand from individuals leading to an increase in the overall GDP. A cut in personal tax rates is long overdue.”

The consumption conundrum

India Inc is also advocating for tax relief amid concerns over the consumption conundrum, which is crucial for driving the country’s economic growth. Reducing income tax rates could help boost India’s lagging consumption levels, which in turn could enhance corporate profits and stimulate the overall economy.

Given the government’s significant reduction in corporate tax rates in recent years and its incentives for the manufacturing sector—which have led to increased investments and supply—a cut in personal tax rates would further strengthen the demand side, Garg added. Additionally, lower tax rates would help the government expand its tax net by encouraging individuals currently outside the tax net to fulfill their tax obligations.

A cut in personal income tax would be a step in the right direction to boost the demand side, as it would provide individuals with more disposable income, leading to higher consumption. He said. The impact of inflation on high commodity prices could be offset by the increased income left in individuals’ hands due to the reduction in tax rates.

But can an income tax cut alleviate India’s sluggish consumption levels amidst rising price pressures?

To this Raote said, “Tax reliefs alone cannot revitalize the economy as there are several other factors that need to be taken into account. However, a rate cut can definitely ease the tax outflow for the common man.”

In a note, KPMG noted that as personal expenditures rise, there is widespread anticipation for an increase in the standard deduction from Rs 50,000 to Rs 1 lakh. Additionally, to boost disposable income for spending on consumer goods or savings, there is a strong expectation that the basic tax exemption limit under the default new tax regime will rise to Rs 5 lakh from the current Rs 3 lakh.