(MENAFN- KNN India)
New Delhi, Dec 27 (KNN) The Indian government is considering a reduction in income tax for individuals earning up to Rs 15 lakhs annually.
The proposed tax cuts could be implemented in the upcoming 2025-26 Union Budget, with the exact magnitude of the reduction yet to be determined, Reuters reported on Thursday, citing two anonymous government sources.
A final decision is expected closer to the February 1 budget announcement.
India currently operates under a dual tax system, offering taxpayers a choice between the Old Tax Regime (OTR) and the New Tax Regime (NTR).
The OTR allows for various deductions and exemptions on investments in insurance, provident funds, and housing loans. Under this system, income up to Rs 2.5 lakh is tax-exempt, followed by progressive tax rates ranging from 5 percent to 30 percent for higher income brackets.
The NTR, introduced in 2020, features lower tax rates but eliminates exemptions and deductions. This system provides tax exemption for income up to Rs 3 lakh, with graduated rates from 5 percent to 30 percent across different income brackets. The highest rate of 30 percent applies to income exceeding Rs 15 lakh.
The potential tax relief comes amid growing concerns about economic slowdown and rising living costs in India.
Chief Economic Advisor V Anantha Nageswaran recently highlighted the disparity between corporate profitability and worker salaries, emphasising the need for balance to stimulate consumption.
He noted that while corporate profitability reached a 15-year high in FY24, companies were primarily using these gains to reduce leverage rather than increase worker compensation.
The middle class has increasingly voiced concerns about their tax burden as inflation continues to outpace wage growth.
Industry leaders, including Nestle India's Managing Director Suresh Narayanan, have expressed worry about the impact of inflation on consumer spending, particularly noting the challenges faced by what he termed the 'shrinking middle class.'
Economic experts suggest that the government may need to reconsider its strict fiscal consolidation approach and provide relief to boost consumer confidence.
The proposed tax cuts, if implemented, could increase disposable income and potentially stimulate consumer spending, supporting economic recovery during the current slowdown period.
(KNN Bureau)
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