Delhi, December 27: As India faces an economic slowdown and mounting pressure from its middle class, could a major income tax cut be the key to boosting consumption and revitalising the economy? As reported by Reuters, the government is contemplating slashing tax rates for individuals earning up to INR 15 lakh in the 2025-26 Union Budget. This move, aimed at providing relief to millions of taxpayers, especially in urban areas, could offer much-needed financial respite.

The proposed tax relief could reshape India’s income tax system, which currently offers two options: the Old Tax Regime (OTR) and the New Tax Regime (NTR). The OTR allows taxpayers to claim exemptions and deductions for investments in insurance, housing, and provident funds, with tax rates ranging from five per cent for incomes between INR 2.5-5 lakh to 30 per cent for incomes above INR 10 lakh. In contrast, the NTR, introduced in 2020, offers lower rates but eliminates exemptions, taxing incomes between INR 3-15 lakh at rates from five per cent to 20 per cent and those above INR 15 lakh at 30 per cent. GST Council Meeting Today: Nirmala Sitharaman Likely To Discuss Proposed Rate Cut on Health Insurance Premiums, Aviation Turbine Fuel Under GST.

While the exact scale of the proposed cuts remains undecided, the focus is on providing relief to taxpayers earning up to INR 15 lakh annually, reported Reuters. Government sources indicated to Reuters, that a final decision would be taken closer to the February 1 budget announcement. The move is expected to encourage more taxpayers to adopt the simplified NTR, which is currently less popular due to its lack of deductions. FM Nirmala Sitharaman Says Funds Devolved to States in 45 Months Under 15th Finance Commission Exceed Total Funds Devolved During 60 Months Under 14th FC.

The tax cuts could alleviate the financial burden on tens of millions of middle-class earners, particularly city dwellers struggling with high living costs. Additionally, it may provide a much-needed boost to consumer spending, aiding economic recovery. India’s GDP growth has slowed, with the July-September 2023 quarter marking its weakest performance in seven quarters. High food inflation has further dampened demand for essential and discretionary goods, compounding the challenges faced by industries and consumers alike.

As the government faces mounting political pressure to address middle-class concerns, the proposed tax relief is seen as a strategic move to stimulate consumption, increase disposable income, and counter-economic fatigue. However, the broader impact on revenue and fiscal balance remains to be seen.

(The above story first appeared on LatestLY on Dec 27, 2024 11:44 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).