India Considers Income Tax Cuts

By Nikunj Ohri

NEW DELHI (Reuters) – India is contemplating income tax reductions for individuals earning up to 1.5 million rupees ($17,590) annually in February's budget. This move aims to provide relief to the middle class and stimulate consumption as economic growth slows, according to two government sources.

If implemented, the tax cuts could assist millions of taxpayers, particularly urban residents facing rising living costs, by allowing them to switch to a simplified 2020 tax system that eliminates exemptions like housing rentals.

Under the existing tax structure, individuals earning between 300,000 rupees and 1.5 million rupees are taxed at 5% to 20%, while incomes exceeding 10 million rupees incur a 30% tax rate.

Taxpayers can choose between the traditional system, which permits exemptions on housing and insurance, or the newer system introduced in 2020 with lower rates and fewer exemptions.

Sources who preferred anonymity due to lack of authorization had no precise figures on the potential tax cuts but indicated that lowering tax rates might encourage more individuals to opt for the simplified system.

The Indian government, which derives a significant portion of its income tax revenue from high earners, is responding to middle-class demands for relief amid inflation that has affected spending on various goods, from personal care products to vehicles. The latest economic data shows India, the world's fifth-largest economy, experienced its slowest growth in seven quarters from July to September.

Additionally, the government is under pressure from the middle class regarding high taxes, especially as wage growth fails to match inflation rates.

($1 = 85.2710 Indian rupees)