Two government sources told Reuters India is debating reducing income tax for those earning up to Rs 15 lakh ($17,590) annually in February’s budget to help the middle class and increase spending as the economy slows down.
Tens of millions of taxpayers, particularly city dwellers plagued by expensive living expenses, might gain from the change should they choose a 2020 tax system devoid of deductions like home leases.
Under such scheme, yearly income ranging from Rs 300,000 to Rs 15 lakh is taxed between five percent and twenty percent. Thirty percent pulls from higher income.
Two tax systems are available to Indian taxpayers: a historical scheme allowing exemption on house rents and insurance, and a more recent one unveiled in 2020 with much reduced rates but does not enable significant exemptions.
The sources stated they had not decided on the extent of any cuts; they were not permitted to speak with the media and hence did not want to be identified. On February 1, they indicated, a decision will be taken more in line with the budget.
The finance ministry answered an email for comments slowly at first.
The sources claimed lowering tax rates would encourage more individuals to select the simpler new system, even if they declined to reveal revenue loss of any tax cut.
With a rate of thirty percent, India obtains most of its income tax from people making at least Rs 1 crore.
More money in the hands of the middle class might help revive the economy, the fifth-biggest globally and which expanded at its weakest rate in seven quarters between July and September. Particularly in cities, high food inflation is also chewing into demand for everything from soaps and shampoos to automobiles and two wheelers.
The middle class has also been politically hot for the government over high taxes; as wages rise cannot keep up with the speed of inflation.
