Government Considering Lowering Personal Tax Rates for Incomes up to 15 Lakh in Budget 2024
Finance minister may lower income tax rates to boost middle class savings.
Finance Minister Nirmala Sitharaman is considering a reduction in personal tax rates for individuals earning ₹15 lakh per annum in the upcoming Budget 2024. This budget is going to be the full budget for 2024 and the first budget of the new government, overriding the interim budget presented by Sitharaman on Feb 1, 2024.
Potential Changes in Income Tax Rates
According to a report by Reuters, citing two government sources, the National Democratic Alliance (NDA) government led by Prime Minister Narendra Modi is considering this move to boost consumption.
The revised income tax rates might be announced in July when Finance Minister Sitharaman presents the full Union budget for the fiscal year 2025. The report suggests, “A cut in personal tax could boost consumption in the economy and increase savings for the middle class.”
- Individuals earning over ₹1.5 million (₹15 lakh) annually may be among those who receive tax relief, though the exact amount is yet to be determined.
- Additionally, the government may consider reducing income tax rates for those with annual incomes of ₹10 lakh.
- There is also discussion about introducing a new threshold for income taxed at the highest rate of 30% under the old tax system.
Impact on the Economy
The proposed changes are seen as a measure to boost consumption and increase savings among the middle class. The Reuters report highlights that a cut in personal tax could significantly impact the economy by:
- Increasing disposable income for middle-class families.
- Encouraging higher spending and saving rates.
- Addressing concerns about high inflation and unemployment.
Background and Rationale
India’s GDP grew at a robust rate of 8.2% in the fiscal year 2023-24; however, consumption growth has lagged, increasing at only half that pace. A post-Lok Sabha elections 2024 survey indicated that voters are particularly concerned about high inflation, unemployment, and decreasing incomes. Prime Minister Modi has emphasized the need to focus on raising middle-class savings and improving the quality of life for this demographic.
Current Tax Structure and Proposed Adjustments
The current tax scheme, launched in 2020, taxes annual income up to ₹15 lakh at rates ranging from 5% to 20%, with earnings above ₹15 lakh taxed at 30%. The income tax rate rises six-fold when an individual’s income increases from ₹3 lakh to ₹15 lakh, a steep escalation that the government aims to address.
Fiscal Considerations
The central government is targeting a fiscal deficit of 5.1% of the GDP for the financial year 2025. Balancing tax cuts with fiscal prudence will be a key challenge for the upcoming budget. The proposed changes in personal tax rates are expected to be a strategic move to stimulate economic activity while maintaining fiscal responsibility.
The potential lowering of personal tax rates in Budget 2024 reflects the government’s commitment to fostering economic growth and supporting the middle class. The final announcements in July will provide more clarity on the extent and impact of these changes.
