There are reports that the centre government is considering raising the income tax exemption limit. The increase would likely be under the new tax regime, which offers lower tax rates but fewer deductions.
This move is intended to give more disposable income to individuals, especially those in the lower income bracket.
The announcement is expected in the upcoming budget, likely to be presented in mid-July 2024.
According to a report by Moneycontrol, the move is aimed at bolstering the country’s GDP growth by stimulating consumption amidst subdued spending levels among the middle class.
The government is planning to raise the income threshold for tax liability from the current Rs 3 lakh to Rs 5 lakh in the forthcoming budget.
This adjustment is intended exclusively for taxpayers under the new regime, aiming to increase disposable income, especially among lower-income groups.
‘Tax Exemption For Rs 15 Lakh Income’
Another report by news agency Reuters stated that the government is considering lowering personal tax rates for certain categories of individuals, which could help boost consumption in Asia’s third-largest economy.
A post-poll survey by Reuters showed that voters were worried about inflation, unemployment and decreasing incomes.
While the Indian economy grew at a world-beating 8.2% in 2023-24, consumption has grown at half that pace.
A cut in personal tax could boost consumption in the economy and increase savings for the middle class, the sources told Reuters.
The category of individuals that may see some tax relief are those earning over Rs 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 Rs 15 lakh is taxed at 5%-20% while earnings over Rs 15 lakh are taxed at 30%.
The personal tax rate jumps six-fold when an individual’s income increases by five times from Rs 3 lakh to Rs 15 lakh, “which is quite steep,” the second source said.
The government may also explore lowering personal tax rates for annual incomes of Rs 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 government is targeting a fiscal deficit of 5.1% of GDP in the financial year ending March 2025.
Strong tax collections amid a buoyant economy and a bumper dividend from the central bank will give the government flexibility in planning the first budget of its new term, Reuters reported earlier.
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