There is good news for the citizens of India. The government may provide tax relief to the middle class. The middle class is criticizing government on social media for imposing heavy taxes. Now, the government is reportedly planning a tax cut for individuals earning up to Rs.15 lakh annually, offering potential relief to millions of middle-class taxpayers. The announcement is expected in the upcoming Union Budget 2025, scheduled for February 1.
Two Tax Options for Taxpayers
Currently, taxpayers in the country have two options to choose from, depending on their income. The first is the Old Tax Regime, where you can avail exemptions for expenses like house rent and insurance. The second option is the New Tax Regime, which offers lower tax rates but eliminates most of the exemptions. You can select the option that best suits your financial situation.ons earning at least Rs 1 crore, the rate for which is 30%.
Aim to Address Rising Costs and Boost Economy
According to sources cited by Reuters, the move aims to alleviate the burden of rising living costs and stimulate consumption amid an economic slowdown. The proposal targets urban taxpayers, who are particularly affected by high expenses and inflation.
Proposed Changes to Tax Regime
Under the current tax system introduced in 2020, individuals earning between ₹3 lakh and ₹10.5 lakh pay taxes at rates ranging from 5% to 20%. Those earning above ₹10.5 lakh are taxed at 30%.
Currently, taxpayers can choose between two systems:
- Traditional Regime: Offers tax exemptions for expenses like housing rentals and insurance.
- Simplified 2020 Regime: Features lower tax rates but eliminates most exemptions.
The proposed cut is expected to encourage more taxpayers to shift to the simplified regime.
Pending Final Decision
While the specifics of the tax reduction are yet to be finalized, sources indicate that the decision will be made closer to the budget date. The finance ministry has not commented on the proposal or its potential revenue implications. One official suggested that any revenue losses from the tax cut could be balanced by increased adoption of the streamlined tax system.
Economic Context
India’s economy is facing challenges, with GDP growth slowing to its weakest pace in seven quarters between July and September 2024. Rising food inflation has strained household budgets, especially in urban areas, reducing demand for goods like vehicles, household items, and personal care products. Political pressure is also mounting, as middle-class families struggle with high taxes and wages that fail to keep pace with inflation.
Potential Impact
If implemented, the tax relief could provide more disposable income to middle-class households, boosting spending and potentially revitalizing economic activity in India, the world’s fifth-largest economy. Budget 2025 will be closely watched for this and other measures aimed at addressing economic and social challenges.
