With the upcoming unveiling of the full Budget for FY25 next month, there’s growing anticipation around potential announcements aiming to provide relief to the salaried class. According to an Indian Express report, the government is contemplating changes to the existing income tax framework, specifically targeting lower income brackets to stimulate consumption.
The focus of the upcoming Budget announcement in late July is expected to be on tax reductions for low-income earners rather than increasing welfare expenditures, as indicated by two government officials quoted in the report.
Read more: Income Tax Dept notifies cost inflation index for FY25 as 363: What it means
These proposed tax reductions are intended to enhance disposable income, thereby driving economic activity and consumption. Concerns have been raised about the significant escalation in marginal income tax rates under the new tax regime.
The officials mentioned that adjusting tax slabs could be more effective in boosting consumption compared to expanding welfare spending. It is highlighted that modifying tax slabs would result in higher disposable income, leading to greater consumption, increased economic activity, and higher GST collection.
Currently, the tax rate starts at 5 per cent for incomes beginning at Rs 3 lakh and sharply rises to 30 per cent for incomes at Rs 15 lakh and above. The report claims that this six-fold increase in the tax rate, despite only a fivefold increase in income, is considered excessive and in need of rationalization.
The implementation of these tax reductions is anticipated to enhance consumption, which is crucial for reviving demand and kick-starting the investment cycle, particularly in consumer-driven sectors. This initiative could also improve GST collections, as per The Indian Express report.
As the budget for the fiscal year 2024-25 approaches, Finance Minister Nirmala Sitharaman is set to initiate pre-budget consultations with industry groups around June 20, following a meeting with Revenue Secretary Sanjay Malhotra on June 18. This budget will outline the economic agenda of the Modi 3.0 government, focusing on stimulating growth while managing inflation and securing resources for coalition commitments.
The broader objective of this Budget is likely to position India as a $5 trillion economy and pave the way for a ‘Developed India’ by 2047, in alignment with the BJP’s political campaign. The government has particularly focused on fiscal consolidation in recent years, aiming to decrease the fiscal deficit to 5.1 per cent of GDP by 2024-25 and further lower it to below 4.5 per cent by 2025-26.
Economists have identified key priorities for Prime Minister Narendra Modi’s third term, including addressing agricultural challenges, job creation, sustaining capital expenditure, and boosting revenue growth to maintain fiscal consolidation. India’s economic policies in the past decade have garnered positive feedback, with rating agency S&P upgrading India’s sovereign rating outlook to positive.
The World Bank’s June ‘Global Economic Prospects’ report has retained the GDP growth forecast for India at 6.6 per cent for FY25, reiterating India’s position as the fastest-growing major economy globally, albeit with an expected slowdown in its growth rate.
Read more: CBDT Orders Withdrawal of Small Tax Demands for Ease of Living