Government considering income tax rate cut to boost consumption: Budget 2024 - Hindustan Times
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Government considering income tax rate cut to boost consumption: Budget 2024

Jun 18, 2024 02:23 PM IST

Government considers income tax rate cuts to boost consumption in the economy and increase savings for the middle class as consumption growth slowed.

The government is considering to lower income tax rates for certain categories of individuals to boost consumption, two government sources told Reuters.

Representational (Unsplash)
Representational (Unsplash)

This could be officially announced in July, when Prime Minister Narendra Modi's government presents the budget after his Bharatiya Janata Party (BJP) failed to win a majority on its own, according to the Reuters report.

A post-poll survey showed that voters were worried about inflation, unemployment and decreasing incomes, the report read.

Also Read | ITR Filing: Income tax slab rates and deductions for old and new tax

The Reserve Bank of India (RBI)’s household inflation expectations survey revealed that households expect inflation to increase by 20 basis points (bps) for the next three months and 10 bps for the next one year.

While the Indian economy grew at a world-beating 8.2% in 2023-24, consumption only grew at half that pace, the report read.

Prime Minister Modi, while staking a claim to form the National Democratic Alliance ruled government, had said his administration would focus on raising middle-class savings and improving the quality of their lives, Reuters wrote.

A cut in personal tax could boost consumption in the economy and increase savings for the middle class, the sources told Reuters, declining to be identified as budget discussions are confidential.

The category of individuals that may see some tax relief are those earning over 15 lakh annually, up to a certain amount which is yet to be determined, the first source said.

The changes could be made to a tax scheme introduced in 2020, where annual income up to 15 lakh is taxed at 5%-20% while earnings over 17 lakh is taxed at 30%, the report read.

Also Read | ITR Filing for 2023-24: Key documents required for income tax returns

The personal tax rate jumps six-fold when an individual's income increases by five times from 3 to 15 lakh, "which is quite steep,” the second source said.

The government may also explore lowering personal tax rates for annual incomes of 10 lakh, said the first source, adding that a new threshold was being discussed for income taxed at the highest rate of 30% under the old tax system.

Any loss of tax income to the government through tax cuts could be partially offset by increased consumption from this category of income earners, the second source said.

The federal government is targeting a fiscal deficit of 5.1% of GDP in the financial year 2024-25, according to the report.

This comes after CII (Confederation of Indian Industry) president Sanjiv Puri told PTI that an income tax relief for people in the lowest slab is likely in the upcoming budget due to high levels of inflation in the country.

Also Read | Food cost remains a drag on inflation

Catch every big news on Budget 2024, Nirmala Sitharaman announcements, income tax changes and much more on a one stop destination.
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