Every year, India’s salaried class eagerly awaits relief in income tax. This year, the middle class is putting its hopes in Finance Minister Nirmala Sitharaman's new budget for a substantial cut in income tax rates. The budget will be presented in Parliament on February 1.
According to a Reuters report, the government is considering tax relief for the middle classes, particularly those earning up to ₹15 lakh annually. The 2025 budget might include an announcement on the tax breaks intended to boost consumer spending and stimulate the economy. The Finance Minister is expected to table the Budget on February 1.
If true, lakhs of taxpayers might benefit greatly, especially city dwellers struggling with high living costs. According to the Reuters report, those choosing the 2020 tax scheme, which excludes exemptions like those for housing rents, would be eligible for this.
Two tax regime options are now available to Indian taxpayers. Under the Old Tax Regime, rent and insurance exemptions are allowed, among other expenses. The New Tax Regime lowers tax rates while doing away with most exemptions. It is up to the taxpayer to choose the better option that fits their financial situation.
Individuals earning up to ₹3 lakh annually are exempt from income tax under the new tax regime implemented in 2020. Income between ₹3 and 7 lakh will be subject to a 5% tax, income between ₹7 and 10 lakh to a 10% tax, and income between ₹10 and 12 lakh to a 15% tax. Furthermore, income between ₹12 and ₹15 lakh would be subject to a 20% tax, while income over ₹15 lakh would be subject to a 30% tax.
| Slabs | Tax rate |
|---|---|
| Upto ₹3 lakh | Nil |
| ₹3-7 lakh | 5% |
| ₹7-10 lakh | 10% |
| ₹10-12 lakh | 15% |
| ₹12-15 lakh | 20% |
| Above ₹15 lakh | 30% |
Under the Old Tax Regime, income up to ₹2.5 lakh is exempt from taxation. For income between ₹2.5 lakh and ₹5 lakh, a tax rate of 5% is applied. Personal income ranging from ₹5 lakh to ₹10 lakh is taxed at 20%, while income exceeding ₹10 lakh is taxed at the highest rate of 30%. This structure allows taxpayers to benefit from various exemptions, including deductions for expenses such as house rent and insurance premiums, providing more flexibility based on individual financial situations.
| Slabs | Tax rate |
|---|---|
| Upto 2.5 Lakh | Nil |
| ₹2.5- ₹5 lakh | 5% |
| ₹5- ₹10 lakh | 20% |
| Above ₹10 lakh | 30% |
According to a government source cited in the Reuters report, lowering the tax rate would encourage more individuals to opt for the new, more straightforward tax regime. The report also highlighted that a significant portion of India's current income tax revenue comes from individuals earning at least ₹10 lakh. Under the old tax regime, these earners are taxed at 20%, while the new tax regime imposes a 10% tax rate.
Siddharth Maurya of Vibhavangal Anukulakara Private Limited suggests that cutting personal income tax for individuals earning up to ₹15 lakh annually could stimulate urban middle-class consumption, which has been affected by inflation and rising living costs.
He added that the consideration of this proposal reflects the view of government officials as it relates to middle-class issues, which also revolve around the need and desire to start a consumption-based growth model.
(By arrangement with livemint.com)