India’s Plan to Cut Personal Income Tax
- December 27, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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India’s Plan to Cut Personal Income Tax
Sub: Eco
Sec : Fiscal Policy
India is considering a personal income tax cut in the upcoming February 2024 Budget to support middle-class households and boost consumption amidst slowing economic growth.
Proposed Tax Cut Details
- Target Group:
- Individuals earning up to ₹15 lakh annually under the new tax regime (2020).
- Current Tax Rates under the New System:
- ₹3 lakh–₹15 lakh: Taxed between 5% to 20%.
- Above ₹15 lakh: Taxed at 30%.
- Comparison of Tax Regimes:
- Old Tax Regime: Allows exemptions (e.g., housing rentals, insurance premiums).
- New Tax Regime: Offers lower rates but eliminates key exemptions.
- Objective:
- Encourage taxpayers to opt for the new, simplified tax system.
- Put more disposable income in the hands of the middle class to stimulate spending.
Potential Impact
- Economic Boost:
- Higher disposable income could spur consumption, particularly in urban areas.
- May help counter sluggish demand in sectors like FMCG, automobiles, and durables.
- Revenue Loss:
- Exact figures remain unknown, but reduced tax rates could result in a lower revenue collection for the government.
- Political Relief:
- Address concerns of the middle class burdened by high inflation and stagnant wage growth.
Economic Context
- Growth Concerns: India’s economy grew at its slowest pace in seven quarters (July–September).
- Inflation Impact: High food inflation has reduced spending power, affecting demand across sectors.
- Taxpayer Dynamics:
- Majority of revenue is generated from high-income taxpayers earning over ₹1 crore annually.
Next Steps
- The final decision on tax rate changes will be made closer to the Union Budget announcement on February 1, 2024.
- A potential reduction in rates is likely to enhance the attractiveness of the 2020 tax regime, simplifying compliance and encouraging broader adoption.
This move is a critical fiscal strategy to balance relief for taxpayers, economic stimulation, and revenue sustainability.