Budget 2024: Modi govt mulls income tax rate cut for earnings over ₹15 lakh, says report

The income tax rate rises sixfold when an individual's income surges fivefold from ₹3 lakh to ₹15 lakh.

To boost consumption, the National Democratic Alliance (NDA) government led by Prime Minister Narendra Modi is considering lowering income tax rates for certain categories of individuals, a report by news agency Reuters said, citing two government sources.

The new income tax rates could be announced in July when Finance Minister Nirmala Sitharaman presents the full Union budget for the fiscal year 2025.

“A cut in personal tax could boost consumption in the economy and increase savings for the middle class,” the report said.

“The category of individuals that may see some tax relief are those earning over ₹1.5 million ( ₹15 lakh) annually, up to a certain amount which is yet to be determined,” the report added.

The central government may also explore reducing the income tax rates for annual incomes of ₹10 lakh, and a “new threshold was being discussed for income taxed at the highest rate of 30 per cent under the old tax system,” said the report.

While India’s GDP (gross domestic product) grew at a strong 8.2 per cent rate in the fiscal year 2023-24, consumption has grown at half that pace.

A post-Lok Sabha elections 2024 survey had shown that voters were concerned about the high inflation, unemployment and decreasing incomes.

While staking a claim to form the NDA government, PM Modi had said that his government would focus on raising middle-class savings and improving the quality of their lives.

The government may make changes to a tax scheme launched in 2020, under which annual income up to ₹15 lakh is taxed at 5 per cent to 20 per cent and earnings above ₹15 lakh are taxed at 30 per cent.

The income tax rate rises six-fold when an individual's income surges by five times from ₹3 lakh to ₹15 lakh, “which is quite steep”, said the report citing the second source.

The government is targeting a fiscal deficit of 5.1 per cent of the GDP in the financial year 2025.