The Indian government plans to offer income tax relief for individuals earning up to Rs 15 lakhs annually in the upcoming budget. This move aims to support the middle class and boost consumption amid economic slowdown and high living costs. The potential change, under the 2020 tax system, could benefit millions of taxpayers, especially those in urban areas.
The new tax regime introduced in 2020 taxes annual income between Rs 3 lakhs and Rs 15 lakhs at rates from 5% to 20%. Higher income draws 30% tax. Taxpayers can choose between the legacy plan, which allows exemptions on housing rentals and insurance, and the newer system with lower rates but fewer exemptions.
The finance ministry has not decided on the size of any cuts yet. They will make a decision closer to the budget announcement on February 1. Reducing tax rates could encourage more people to opt for the new system, which is simpler. The government hopes that putting more money in the hands of the middle class will help revive the economy. The economy has been growing at its slowest pace in seven quarters.
High food inflation affects demand for goods ranging from soaps and shampoos to cars and two-wheelers. This is particularly in urban areas. The government faces political pressure from the middle class over high taxes. Wage growth has not kept up with inflation.
