India may cut income tax for individuals earning up to ₹15 lakh a year in the February budget, according to government sources. The move is aimed at relieving the financial burden on the middle class and boosting consumer spending amid an economic slowdown.
It will help millions of taxpayers, particularly urban residents battling high living expenses if implemented. The move is aimed at taxpayers using the simplified tax regime that came into effect in 2020, applicable on income between ₹3 lakh and ₹15 lakh with tax rates of 5% to 20%. Taxable incomes above ₹15 lakh will be taxed at 30%.
Taxpayers have two choices: the old system, which offers exemptions on housing and insurance, or the new one with slightly lower rates but no significant deductions.
According to government insiders who requested anonymity, the size of the potential tax cut is still being debated. A decision will be made closer to the budget presentation on February 1.
Reason why India has announced new income tax rules for individuals earning over ₹15 lakh a year
Officials hope this should encourage more people to use the simplified tax system; it is less burdensome and could even lighten some of the compliance hurdles in the system. To date, the finance ministry still has not made a comment on the proposal or the outcome effect on collection.
India heavily relies on individual income tax contributions from taxpayers earning at least ₹10 lakh per annum, which is taxed at the highest rate. Some revenue loss might be offset by shifting more taxpayers to the simple structure while giving relief.
Economists think that increasing the disposable income of middle-class households could help revive the demand in Asia’s third-biggest economy. India’s growth in the July-September period was the weakest in the last seven quarters. High food inflation dented spending on consumer goods and essentials.
Stagnant wages, coupled with high taxes not keeping up with inflation rates, have put pressure on middle-class voters in this direction. The potential tax cut could also do some economic good and have added political benefit for the government.
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