Budget 2025: Income Tax Relief For People Under Rs 15 Lakh CTC? See Report

India is reportedly considering cutting income taxes for individuals earning up to 1.5 million rupees ($17,590) annually in the upcoming February budget, in a bid to ease the financial burden on the middle class and stimulate consumer spending as the economy slows. According to two government sources, the potential tax cut would be aimed at providing relief to millions of taxpayers, particularly city dwellers struggling with high living costs.

Tax System Options and Possible Benefits

Under the current tax structure, individuals can choose between two systems: a legacy plan that allows for exemptions such as housing rental and insurance, or a newer system introduced in 2020 that offers lower tax rates but eliminates major exemptions. For incomes ranging from 300,000 to 1.5 million rupees, the new system imposes taxes at rates between 5% to 20%, with a higher 30% rate for those earning above 1.5 million rupees. A reduction in tax rates could encourage more people to opt for the simplified, newer tax system, making it more attractive for taxpayers.

Uncertainty Over Size of Tax Cuts

While the exact size of any proposed tax cuts remains unclear, one source indicated that the move could lead to a larger number of people choosing the newer tax system, which is simpler but less flexible in terms of exemptions. The finance ministry has not yet commented on the potential changes, and officials have stated that a decision would be made closer to the budget announcement on February 1.

Economic Challenges and Consumer Strain

India’s economy, the fifth-largest in the world, grew at its slowest pace in seven quarters between July and September, largely due to high food inflation and slowing consumption. Rising costs are impacting demand for a wide range of goods, including everyday essentials such as soaps and shampoos, as well as big-ticket items like cars and two-wheelers, especially in urban areas.

Additionally, the middle class has been voicing concerns over high taxes, particularly as wage growth struggles to keep pace with inflation. By putting more disposable income in the hands of the middle class, the government hopes to boost consumption and revitalize economic growth in a challenging economic environment.