New Delhi, 29 December 2024 – India is considering reducing income tax for individuals earning up to ₹15 lakh annually in its upcoming budget, according to two government officials. The move, expected to benefit millions of taxpayers, aims to ease financial pressure on the middle class and revive consumption as the economy slows.
If implemented, the proposal could make the 2020 income tax system—offering lower rates without exemptions—more attractive to taxpayers, especially urban residents burdened by rising costs. The system currently taxes incomes between ₹3 lakh and ₹15 lakh at rates of 5% to 20%, while those earning more face a 30% levy.
Taxpayers currently have two options: the traditional system, which includes exemptions for expenses such as rent and insurance, and the newer 2020 framework, which eliminates exemptions in exchange for slightly reduced rates.
The sources, who requested anonymity as they are not authorized to speak publicly, said discussions were ongoing, and final decisions on rate reductions would be made closer to the February 1 budget presentation. The finance ministry did not provide a comment when approached.
One official hinted that rate cuts might simplify tax compliance and draw more taxpayers to the exemption-free regime, stating, “Encouraging adoption of the new system could streamline tax processes for individuals.” However, the revenue implications of such a change remain unclear.
India, ranked as the world’s fifth-largest economy, derives a significant share of its income tax from those earning over ₹10 lakh annually, who are taxed at 30%. Relief for middle-income groups could increase disposable income and boost consumption, providing a lift to the economy.
The country’s growth slowed to a seven-quarter low from July to September, exacerbated by high food inflation, which has reduced demand for goods ranging from personal care products to vehicles. Policymakers see higher middle-class spending as a potential counter to these economic headwinds.
