personal-tax-cuts-likely-in-modi-3-0-budget

The Modi government is reportedly considering reducing personal income tax rates for specific groups of individuals, aiming to boost consumption in India, the third-largest economy in Asia.

 

According to two government sources who spoke to Reuters on the condition of anonymity, this potential move might be announced in July when Finance Minister Nirmala Sitharaman presents the first Union Budget following the Modi 3.0 government's recent re-election.

 

The upcoming Budget for the fiscal year 2024-25 is expected to be announced next month in July and there is growing anticipation of significant measures aimed at providing relief to the salaried class. A  report suggests that the government is mulling over changes to the current income tax framework, particularly targeting lower income brackets to enhance consumption.

 

Two government officials cited by the report indicated that the Budget announcement in late July is likely to focus on tax reductions for low-income earners rather than on increasing welfare expenditures. The officials emphasized that reducing tax burdens could be more effective in driving consumption compared to expanding welfare spending.

 

One official pointed out that adjusting tax slabs could result in higher disposable income, leading to “greater consumption, greater economic activities, and increased GST collection.” Currently, the income tax rate starts at 5% for incomes beginning at Rs 3 lakh and rises sharply to 30% for incomes at Rs 15 lakh and above. This sixfold increase in the tax rate, despite only a fivefold increase in income, is seen as excessive and in need of rationalization, the report claimed.

 

Implementing these tax reductions is expected to boost consumption, which is essential for reviving demand and jump-starting the investment cycle, especially in consumer-driven sectors. This initiative could also enhance GST collections, according to report.

 

As preparations for the 2024 Budget intensify, Finance Minister Nirmala Sitharaman is set to begin pre-budget consultations with industry groups around June 20, following a meeting with Revenue Secretary Sanjay Malhotra on June 18. This budget will outline the economic agenda of the Modi 3.0 government, which aims to stimulate growth without triggering further inflation, while securing resources for coalition commitments.