India’s government is reportedly considering a proposal to reduce personal income tax for individuals earning up to Rs 1.5 million ($17,590) annually in the upcoming budget. This move aims to alleviate the financial burden on the middle class and stimulate consumption in light of a slowing economy, according to a report by Reuters citing two government sources.
The sources indicated that while discussions are ongoing, a final decision on the extent of the tax cuts has not yet been made. The government is expected to finalize its approach closer to the budget announcement scheduled for February 1.
Impact on Taxpayers and Current Tax Regimes
If implemented, the potential tax relief could benefit tens of millions of taxpayers, particularly urban residents grappling with high living costs. Currently, taxpayers in India can choose between two tax systems: the older framework, which allows for exemptions on expenses such as housing rentals and insurance, and the new tax regime introduced in 2020, which offers reduced rates but eliminates many key exemptions.
Under the new tax regime, incomes between Rs 300,000 and Rs 1.5 million are taxed at rates ranging from 5% to 20%, while incomes exceeding Rs 1.5 million are taxed at a rate of 30%. The proposed changes are seen as a way to provide much-needed relief to the middle class and encourage greater consumer spending in the economy.
