India Considers Income Tax Cuts for 2024 Budget

India's government is contemplating reducing income tax for individuals earning up to 1.5 million rupees ($17,590) annually in the upcoming February budget. The aim is to ease the financial strain on the middle class and stimulate consumption as the economy slows down, according to two anonymous officials cited by Reuters.

This potential tax reduction could benefit millions of taxpayers, particularly urban residents facing high living costs. However, to qualify, individuals must choose the 2020 tax system, which does not include certain exemptions like those for housing rentals.

In the 2020 tax regime, income between 300,000 and 1.5 million rupees is taxed at rates varying from 5% to 20%, while earnings beyond this bracket are taxed at 30%. Taxpayers can opt for either this system or a legacy plan offering exemptions on rentals and insurance at slightly higher rates.

The officials, preferring to remain unnamed, stated that the final extent of the proposed tax cuts has yet to be determined, with a decision anticipated before the February 1 budget announcement. The finance ministry has not yet commented on the matter. The officials refrained from estimating potential revenue losses from these tax cuts, but one indicated that lower rates might encourage more individuals to choose the newer tax system, which is less complex.

Most of India’s income tax revenue is garnered from individuals earning at least 10 million rupees annually, taxed at 30%.

These proposed tax cuts could potentially invigorate the economy by increasing disposable income for the middle class. Currently, India, the world’s fifth-largest economy, is experiencing its slowest growth rate in seven quarters as of July to September. High food inflation is impacting demand for various goods, from personal care products to automobiles, especially in urban centers.

The government faces political pressure from the middle class due to steep taxes and wage growth lagging behind inflation.

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