Big relief to Indian middle class, government is considering tax cuts amid economic challenges.
Amid the uproar over high taxation, the Indian government is reportedly considering a major relief for middle-class taxpayers, especially those earning up to Rs 10.5 lakh annually (US$12,300). Indian media reports suggest the move could be announced in the 2025 Budget on February 1, aimed at boosting consumer spending amid a slowing economy.
What is the current system?
As per the latest income tax regime announced in 2020, income between Rs 3 lakh and Rs 10.5 lakh attracts tax rates between 5 per cent and 20 per cent. Those earning more than Rs 10.5 have to pay a staggering tax of 30 per cent.
Today, Indian taxpayers have the option to choose from two regimes: the old regime, which offers exemptions for expenses such as housing rent and insurance; and the new regime which offers lower taxation rates but eliminates most exemptions.
Now, if the proposed tax relief is offered, more people will rush to adopt the simplified 2020 regime. The report clarifies that the Prime Minister Narendra Modi-led government has not yet decided on the size of the deductions or relief. The Finance Ministry or Minister Nirmala Sitharaman have not commented on these reports. Indian economy is slowing Changes to the Indian taxation system are being considered amid concerns over growing economic challenges. GDP growth between July and September in 2024 has fallen to the lowest in the last seven quarters. Food inflation is also on the rise, further pushing down the cost of living. A decline in sales of items such as vehicles, household goods and personal care products also indicates worrying trends for the economy. By offering tax relief, the government wants to boost spending and boost growth.