Govt mulling tax rate cuts to boost consumption?
Budget 2024: A cut in personal tax could boost consumption in the economy and increase savings for the middle class
image for illustrative purpose
currently, the personal tax rate jumps 6-fold, when an individual’s income increases by 5x from Rs3 lakh to Rs15 lakh, which is quite steep
New Delhi: The Centre is considering lowering personal tax rates for certain categories of individuals, which could help boost consumption in the Asia’s third-largest economy, two government sources said. The plan could be announced in July in the first Union Budget of the new government at the Centre. A post-poll survey showed that voters were worried about inflation, unemployment and decreasing incomes.
While the Indian economy grew at a whopping 8.2 per cent in 2023-24, consumption has grown at half that pace.
Prime Minister Modi, while staking a claim to form the government, had said his administration would focus on raising middle-class savings and improving the quality of their lives.
A cut in personal tax could boost consumption in the economy and increase savings for the middle class, the sources said.
The category of individuals that may see some tax relief are those earning over Rs15 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 Rs15 lakh is taxed at 5 per cent to 20 per cent, while earnings over Rs15 lakh is levied at 30 per cent tax. The personal tax rate jumps six-fold when an individual’s income increases by five times from Rs3 lakh to Rs15 lakh, which is quite steep,” the second source said. The government may also explore lowering personal tax rates for annual incomes of Rs10 lakh, said one of the sources, adding that a new threshold was being discussed for income taxed at the highest rate of 30 per cent 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, another source said.
The Centre is targeting a fiscal deficit of 5.1 per cent of GDP in the financial year ending March 2025.
