India is considering reducing income tax for individuals earning up to ₹15 lakh ($17,590) annually in the upcoming budget for February, aiming to provide relief to the middle class and stimulate consumption amid an economic slowdown, according to two government sources. This move could benefit millions of taxpayers, particularly urban residents facing high living costs, if they opt for the 2020 tax regime, which eliminates exemptions like those for housing rentals.
Under the 2020 system, incomes between ₹3 lakh and ₹15 lakh are taxed at rates ranging from 5% to 20%, while higher incomes are taxed at 30%. Taxpayers in India can choose between two systems: the older plan, which allows exemptions for housing rentals and insurance, and the newer one introduced in 2020, offering slightly lower rates but without major exemptions.
The sources, who requested anonymity as they were not authorized to speak to the media, stated that the details of any potential tax cuts have not been finalized. A decision will be made closer to the budget announcement on February 1, they added.
The finance ministry has not yet responded to an email seeking comment. The sources declined to share the potential revenue loss from any tax reductions, but one mentioned that lowering tax rates could encourage more people to opt for the new system, which is simpler. A significant portion of India’s income tax revenue comes from individuals earning at least ₹10 million, who are taxed at 30%.
Increasing disposable income for the middle class could help stimulate the economy, which is the world’s fifth-largest but grew at its slowest pace in seven quarters between July and September. High food inflation is also dampening demand for goods such as soaps, shampoos, cars, and two-wheelers, particularly in urban areas.
The government is also under political pressure from the middle class due to high taxes, while wage growth has not kept pace with inflation. ($1 = ₹85.2710).