Govt Considers Personal Income Tax Cuts, Aiming To Boost Consumption

New Delhi, Jun 18 (KNN) The Indian government is evaluating potential reductions to personal income tax rates for certain segments of taxpayers, according to two government sources familiar with the discussions.

The mooted tax cuts are being viewed as a measure to stimulate consumption in Asia's third-largest economy, as reported by Reuters.

The sources, who requested anonymity due to the confidential nature of budget deliberations, stated that an announcement regarding the tax reforms could come as early as July.

This timing would coincide with the presentation of the first federal budget by Prime Minister Narendra Modi's government since his Bharatiya Janata Party (BJP) failed to secure an outright majority in the recent general elections.

Despite India's economic growth reaching an impressive 8.2 per cent in the 2023-24 fiscal year, consumption growth has been relatively muted, expanding at approximately half that rate.

Addressing this discrepancy appears to be a priority for the administration, with Prime Minister Modi previously signalling his government's intent to bolster middle-class savings and enhance living standards.

The sources indicated that the proposed tax relief could target individuals earning above 15 lakh rupees annually, up to an as-yet undetermined income threshold.

Modifications are being contemplated to the existing tax regime introduced in 2020, which levies a 5-20 per cent tax on annual incomes up to 15 lakh rupees, while incomes exceeding that amount are taxed at a flat rate of 30.

One source highlighted the steep increase in the tax rate, which escalates six-fold when an individual's income rises from 300,000 rupees to 1.5 million rupees.

Discussions are also underway to explore lowering personal tax rates for those earning 1 million rupees annually and potentially revising the threshold for the highest 30 per cent tax bracket under the older tax system.

While acknowledging that any reduction in tax revenue could partially be offset by increased consumption from the targeted income groups, the government is also cognizant of its fiscal deficit target of 5.1 per cent of GDP for the 2024-25 financial year.

Robust tax collections amidst India's economic buoyancy, coupled with a substantial dividend from the central bank, are expected to provide the administration with greater flexibility in crafting its first budget of the new term.

The Finance Ministry did not immediately respond to a request for comment on the matter.

(KNN Bureau)