NEW DELHI: India is considering a cut in income tax for people earning up to Rs 1.5 lakh a year in the February budget to provide relief to the middle class and boost consumption as the economy slows. two official sources told Reuters.
The measure could benefit tens of millions of taxpayers, especially city dwellers burdened with high living costs, if they opt into a 2020 tax system that would eliminate exemptions such as housing rents. is
Under this system, annual income between Rs 3 lakh and Rs 15 lakh is taxed between 5% and 20%, while higher income is taxed at 30%.
Indian taxpayers can choose between two tax regimes — a legacy plan that allows exemptions on house rent and insurance, and a new one introduced in 2020 that offers slightly lower rates, but larger exemptions. does not allow
The sources, who spoke on condition of anonymity because they were not authorized to speak to the media, said they had not decided on any cuts. He said that a decision will be taken on February 1 near the budget.
The finance ministry did not immediately respond to an email seeking comment.
Sources declined to share the revenue loss from any tax cuts, but one said more people would opt for the new system, which is less complicated, than the tax rate cut.
India levies the bulk of its income tax on individuals earning at least Rs 1 crore, at a rate of 30%.
More money in the hands of the middle class could help revive the economy, which is the world’s fifth largest and grew at its slowest pace in seven quarters between July and September. High inflation of food items is also driving demand for goods ranging from soap and shampoo to cars and two-wheelers, especially in urban areas.
The government also faces political heat over high taxes from the middle class, and wage growth is unable to keep pace with inflation.