“Treasury mulls income tax relief to spur spending, private sector investment”
As the Indian economy grapples with weak consumer demand, government policymakers are considering rationalizing the country's personal income tax structure, particularly for lower earners. Multiple senior officials disclosed to this publication that income tax cuts for those on smaller salaries may take precedence over other stimulus measures due to the administration's fiscal sustainability focus.
Reducing the tax burden could effectively raise disposable incomes and fuel spending, sources explained. Higher consumer outlays would power economic activity and private sector growth, ultimately benefiting government coffers through direct and indirect tax collection. “By unleashing spending power, you activate more revenue streams. Both individuals and companies would have extra funds to report as taxable income,” one senior figure elaborated.
It's understood discussions have acknowledged the current tax rate increases too abruptly. “The lowest slab of 5% taxation starts at INR 300,000 annually but jumps to 30% for salaries just five times higher, a disproportionate rise,” an official noted. A more gradual progression would make the system fairer and incentivize higher earnings.
While income tax relief could temporarily dent tax receipts, follow-on consumption effects suggest the net fiscal impact may be positive. Dynamic modeling will capture wider economic impacts over time, sources stressed. The NDA government is expected to present its 2024-25 Budget by mid-July, aiming to balance recovery support with ongoing fiscal discipline targets.
