The Indian government is reportedly considering a tax cut on personal income tax in the upcoming February Budget, aiming to provide relief to the middle class and stimulate domestic consumption, according to Reuters.
Key Highlights of the Proposal:
Tax Relief for Middle-Income Earners: The proposed tax cut would benefit individuals earning up to ₹1.5 million ($17,590) per year. Encouraging Shift to the New Tax Regime: The revised tax structure, introduced in 2020, removes traditional exemptions like housing rental benefits, but offers a simplified framework. Targeting Consumption Growth: With India’s economic growth slowing and high food inflation affecting spending, this move aims to boost demand across urban and rural markets. Impact on Government Revenues: While officials haven’t disclosed the potential revenue loss, one source suggested that lower tax rates could encourage more people to switch to the new system, offsetting some of the shortfall.
Why This Matters?
India’s economic growth slowed to a seven-quarter low in July-September 2024, with weakening demand hitting sectors ranging from FMCG (soaps, shampoos) to automobiles (two-wheelers and cars). Lower taxes could increase disposable income, potentially reviving consumer sentiment and spending.
Do you think a tax cut is the right move to revive India’s economy? Let us know your thoughts!
In my view, cutting direct taxes won’t really fix the situation.
There are two better approaches.
First, we should look for ways to grow the population. This could lead to a rise in overall consumption. When more people are involved, the numbers naturally increase, making this option the simplest to implement.
Second, by reducing direct taxes, we’re only benefiting a small portion of the population—less than 5%. The challenge is to help the other 95% engage more. One way to do this is by lowering the prices of goods, which would allow those who don’t pay taxes to buy more.
Population growth takes time to reflect its impact on the overall economy. While India is currently the most populated country in the world, projections suggest that by 2050, our average age will start to decline. To counter this trend, encouraging higher birth rates could be a potential solution.
As for reducing the prices of goods, it’s not a simple task. Multiple factors influence pricing, with inflation being the most significant driver. Managing inflation effectively will be key to addressing this challenge.
I think the top 5% of tax payers contribute to 2/3 of personal income tax revenue of the govt. Reduce tax for them and take the rest 95% out of Tax bracket. This will lead to increased consumption, boost the economy and provide additional revenue to the govt as GST and Corporate tax.
Any move by the govt to reduce my tax incidence is a happy move for me But being in the higher tax bracket am not sure whether the govt will be kind towards me
Simplifying Taxes Is The Only Solution To Revive Consumption & Growth, Things Like One Tax ( Such As Income Tax ) Should Be Considered, But Govt. won’t Do It, Even This Tax Free Income Upto 1.5 Million News Seems Fake, Atleast Not Possible Considering The Current Govt. activities.
I am eager to find out this quarter, if there is a real connection between the dropping Consumption Indicators of the Central Government and the profit amounts of popular FMCG companies. Ideally, there should be a positive link.
Tax Relief for Middle-Income Earners: The proposed tax cut would benefit individuals earning up to ₹1.5 million ($17,590) per year.
But being in the higher tax bracket am not sure whether the govt will be kind towards me 