India Considers Cutting Income Tax For Middle Class?

India is reportedly considering cutting income tax for middle-class individuals to boost consumption.

A report from Reuters says that India is considering to relieve from high income tax for individuals making up to 15 lakh rupees a year.

Under the 2020 tax system, the annual income of 300,000 rupees to 15 lakh rupees is taxed at between 5% to 20% and higher income draws 30%.

The taxpayers can choose between two tax systems, a legacy plan allowing exemptions on housing rentals and insurance while the newer one introduced in 2020 offers lower rates, but does not allow major exemptions.

However, the decision would be taken before the budget on February 1, 2025.

For now, there were changes in Income tax law announced in July 2024 and will be affective for the 2024-25 fiscal year.

According to those announced in 2024,

• New income tax slabs changed under the new tax regime, which allows the taxpayers to save more income tax for FY 24-25. It could save income tax up to Ts 17,500 in a financial year.
• The new slabs have an Income tax rate of 0% for 0-300000 rupees, 5% for 3,00,001-7,00,000, 10% for 7L-10L, 15% for 10L-15L, 20% for 12L-15L, and 30% for 15L and above.
• The standard deduction limit under the new tax regime is Rs 75,000 instead of Rs 50000 earlier. The standard deduction limit has been hiked to Rs 25000 from Rs 15000 for family pensioners.
• Higher deduction on employer’s contribution to NPS – Employees can claim a higher deduction for the employer’s contribution to the National Pension System, up to 14% of their basic salary. Earlier, it was 10% of their basic salary.
• Long-term capital Gains and Short Term Capital Gains: Short-term capital gains on equity and equity-oriented mutual funds will be taxed at 20%. This has been hiked by 5% from 15% earlier. Short Term Capital gains from other assets will be taxed at slabs applicable to the income.
• Long-term capital gains from assets will be taxed at 12.5%. Equity and equity-oriented mutual funds will be exempt from tax up to Rs 1.25 lakh per financial year instead of Rs 1 lakh earlier.