India Considers Income Tax Cuts for the Middle Class in February Budget - Reuters

Investing.com -- The Indian government is considering reducing income tax for individuals earning up to 1.5 million rupees (approximately $17,590) in its budget set for February. According to two anonymous government sources speaking to Reuters, the aim is to ease the financial burden on the middle class and stimulate consumption as the economy slows down.

This potential tax reduction could provide relief to tens of millions of taxpayers, particularly urban residents struggling with high living costs. However, the benefits would only apply to those opting for the 2020 tax system, which eliminates certain exemptions such as housing rent.

Under the 2020 tax system, income between 300,000 and 1.5 million rupees is taxed at rates ranging from 5% to 20%. Any income exceeding this bracket is taxed at 30%. Indian taxpayers have the option to choose between this system and the older plan, which offers exemptions on housing rents and insurance but has slightly higher rates.

Sources, wishing to remain anonymous due to a lack of authorization to speak to the media, indicated that the full extent of the tax reductions has not yet been determined. A decision will be made closer to the budget announcement on February 1.

The Finance Ministry did not respond to requests for comments. Sources declined to provide estimates regarding potential revenue loss from the tax reductions. However, one source suggested that lower tax rates could encourage more individuals to opt for the new and simpler tax system.

A significant portion of India's income tax revenue comes from individuals earning at least 10 million rupees annually and taxed at the 30% rate.

The proposed tax reductions could potentially boost the economy by putting more money in the hands of the middle class. India's economy, the fifth largest in the world, recorded its slowest growth rate in seven quarters during the July-September period. High food inflation has also affected demand for various goods, from personal care products to automobiles, especially in urban areas.

The government is under political pressure from the middle class due to the inability to manage high taxes and inflation amidst wage increases.