Modi Government considers income tax cuts for high earners

The Modi-led National Democratic Alliance (NDA) government is exploring the possibility of lowering income tax rates for individuals with annual earnings above ₹15 lakh, according to a report. This move, aimed at boosting consumption and savings among the middle class, may be officially announced in July when Finance Minister Nirmala Sitharaman presents the Union Budget for the fiscal year 2025.

Potential Tax Reductions:

The government is contemplating tax cuts for individuals earning over ₹15 lakh annually, potentially extending to other income brackets.

Current discussions include a new threshold for the highest tax rate of 30% under the existing tax system.

Economic Context:

Despite an 8.2% GDP growth rate in the fiscal year 2023-24, consumption growth has lagged at around half that pace.

The proposed tax cuts aim to stimulate economic activity by increasing disposable income and savings among the middle class.

Political and Social Implications:

The consideration for tax cuts follows voter concerns over high inflation, unemployment, and declining incomes, as highlighted in a post-2024 Lok Sabha election survey.

PM Modi has emphasized the government’s commitment to improving middle-class savings and overall quality of life.

Current Tax Framework:

Under the tax scheme introduced in 2020, incomes up to ₹15 lakh are taxed progressively at rates between 5% and 20%.

Earnings above ₹15 lakh are subjected to a 30% tax rate, a structure the government may revise.

Tax Rate Discrepancy:

The report notes that the income tax rate increases sixfold when an individual's income rises from ₹3 lakh to ₹15 lakh, a progression viewed as steep and potentially burdensome.

The Modi government is considering significant changes to the income tax structure in a bid to enhance consumer spending and support economic growth. The specifics of these changes are expected to be detailed in the upcoming Union Budget.