I-T relief expected in 2025: Which income group will benefit?
The Indian government is reportedly considering a reduction in income tax rates for the upcoming 2025-26 Union Budget, particularly for individuals earning up to ₹15 lakh annually. This potential move aims to provide relief to the middle class amid rising living costs and economic challenges. According to Reuters, discussions are ongoing, and a final decision on the size of the cuts is expected closer to the budget announcement on February 1, 2025.
Tax cut aims to alleviate economic pressure on middle class
The proposed tax cuts come at a time when many middle-class families are feeling the pinch of inflation and increased expenses. The government recognizes that easing the tax burden could stimulate consumption and provide much-needed financial relief. If implemented, these changes could benefit millions of taxpayers who have been grappling with high costs of living and stagnant wages.
Understanding India's dual tax regime
India follows a dual tax regime: Old Tax Regime (OTR) and New Tax Regime (NTR). The OTR allows deductions and exemptions on investments in insurance, PFs, and housing loans. Under this regime, income above ₹10 lakh is taxed at 30%. NTR, introduced in 2020, comes with lower tax rates but doesn't allow major exemptions or deductions. In this regime, income between ₹10-12 lakh is taxed at 15%, income between ₹12-15 lakh at 20%, and income above ₹15 lakh at 30%.
Tax cut could boost disposable income, stimulate spending
India earns most of its income tax from those earning ₹10 lakh or more, taxed at 30% under OTR. Tax cuts or higher exemptions could make NTR appealing. A reduction in tax liability could boost disposable income for salaried individuals, possibly resulting in increased consumer spending. This could help revive the economy during the slowdown. The move is viewed as a response to the rising criticism from the middle class over higher taxation amid inflation and stagnant wage growth.
