India may lower income tax for annual incomes up to Rs 15 lakh in Budget to boost middle-class spending

The initiative aimed to ease financial pressures on the middle class and boost consumer spending amidst a slowing economy.

If introduced, the changes could financially relieve millions of taxpayers, particularly urban residents grappling with elevated living expenses.

The adjustments would apply to those under the 2020 tax regime, which excludes traditional exemptions like deductions for housing rent.

In this regime, annual incomes between Rs 3 lakh and Rs 15 lakh are taxed at rates ranging from 5% to 20%, while incomes above Rs 15 lakh are taxed at 30%.

The measure primarily seeks to support personal consumption and offer middle-class households some reprieve, potentially benefiting tens of millions of taxpayers across urban centres, who are increasingly burdened by rising living costs.

India's economy, the fifth largest in the world, recorded its slowest growth rate in seven quarters during the July-September period.

This sluggish performance has been compounded by high food inflation, which has dampened consumer demand for goods, including vehicles.

While the scope of the proposed tax cuts is yet to be finalised, sources mentioned the decision would be confirmed closer to the presentation of the Budget on February 1, 2024.

Currently, taxpayers can choose between two tax systems: the traditional regime, which provides exemptions for expenses like housing rentals and insurance, and the new 2020 tax regime that offers lower rates but eliminates most exemptions.

According to Reuters, a reduction in tax rates could incentivise more taxpayers to shift to the simplified 2020 regime.

The report added that individuals earning Rs 10 lakh or more annually contribute a significant portion of India’s income tax revenue, as this bracket is subject to a 30% tax rate.