Govt Mulls Personal Tax Rate Cuts To Promote Consumption: Report

The report added that the potential beneficiaries of this tax relief measure could include individuals earning over 1.5 million rupees annually, up to a specific threshold that has yet to be finalised

The government is reportedly deliberating on reducing personal tax rates for specific groups of individuals. This potential move aims to stimulate consumption in India, according to a news agency Reuters report citing sources. The proposal is anticipated to be unveiled in July alongside the presentation of the union budget, marking Prime Minister Narendra Modi's government's first budget after the Lok Sabha elections.

Despite the Indian economy's impressive growth rate of 8.2 per cent in 2023-24, a survey conducted after the elections revealed a contrasting trend. Voters expressed concerns about inflation, unemployment, and declining incomes. The growth in consumption, in particular, has been comparatively slower, at half the pace of the overall economic growth.

The report further revealed that reducing personal taxes could stimulate consumption and bolster savings among the middle class.

The report added that the potential beneficiaries of this tax relief measure could include individuals earning over 1.5 million rupees ($17,960.42) annually, up to a specific threshold that has yet to be finalised.

The proposed revisions could amend the tax structure introduced in 2020, where annual incomes up to 1.5 million rupees are taxed between 5 per cent and 20 per cent, while earnings exceeding 1.5 million rupees face a 30 per cent tax rate.

The increase in personal tax rates by six times as income rises fivefold from 300,000 to 1.5 million rupees is deemed quite steep, noted the report.

The report claims that the government is also contemplating reducing personal tax rates for individuals earning up to 1 million rupees annually. Discussions include setting a new threshold for income taxed at the highest 30 per cent rate under the previous tax regime.

According to the report, the potential reduction in government tax revenue due to these cuts may be partly offset by increased spending from this income group.

As per earlier Reuters reports, the federal government is targeting a fiscal deficit of 5.1 per cent of GDP for the fiscal year ending March 2025. Robust tax collections amid a vibrant economy and substantial dividends from the central bank are expected to provide flexibility in crafting the new term's inaugural budget.