India Considers Tax Relief for Middle-Income Earners

In a move to alleviate the financial burden on the middle class and stimulate economic growth, the Indian government is contemplating significant income tax reductions for individuals earning up to Rs 15 lakh annually. This initiative, expected to be announced in February's budget, aims to provide relief amidst slowing economic growth.

Under the proposed changes, taxpayers could benefit from lower tax rates under a system introduced in 2020, which simplifies the tax structure by eliminating major exemptions. This system taxes annual incomes between Rs 3 lakhs and Rs 15 lakhs at rates ranging from 5% to 20%, with higher incomes taxed at 30%. The decision on the extent of the tax cuts is still pending, with final details to be revealed closer to the budget announcement.

Economic Implications of Tax Reductions

By increasing disposable income for the middle class, the government hopes to boost consumption and invigorate the economy. This strategy comes at a critical time when India's economic growth has hit a seven-quarter low, and high food inflation is dampening consumer demand across various sectors.

The government's move also addresses growing discontent among the middle class over high taxation and wage growth that fails to keep pace with inflation. With the majority of income tax revenue coming from high earners, the proposed tax cuts could encourage more taxpayers to opt for the simplified tax system, potentially broadening the tax base and enhancing compliance.