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Budget 2025, Income Tax Exemption: News agency Reuters, citing two government sources, reported that the Government of India is considering reducing income tax for people earning up to Rs 15 lakh annually in the upcoming budget, aimed at providing relief to the middle class and encouraging consumption amid the economic slowdown. If this proposal is implemented, it can benefit millions of taxpayers. Especially those living in cities who live a high life style will benefit.

This relief will apply to those who opt for the 2020 tax regime, which does not include exemptions such as exemptions for housing rent. Under the new tax regime, annual income between Rs 3 lakh and Rs 15 lakh is taxed at between 5% and 20%. Higher incomes are taxed at 30%. The main objective is to boost personal consumption and provide some relief to the middle class, potentially benefiting millions of taxpayers, especially in cities burdened by rising living costs.

India, the world's 5th largest economy, grew at its slowest pace in 7 quarters between July and September. It is also hit by high food inflation, which has dampened demand for consumer goods and even vehicles. However, according to the report, the size of the cut is not yet fully decided and a final decision may be taken closer to the budget on February 1, 2025.

Currently, taxpayers can choose from two tax systems; the old tax regime which offers exemptions on house rent and insurance and the new tax regime introduced in 2020 which offers slightly lower rates but no major exemptions. According to the report, lowering the tax rate will encourage more people to opt for the new tax regime, which is also less complex.

The report said that the bulk of India's current income tax collection comes from individuals earning at least Rs 10 lakh, for which the rate is 30%. The government is also facing political outrage from the middle class over high taxes and salary increases unable to catch up with the pace of inflation.

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