India considering lowering personal tax rates: Report

The Indian government is exploring the possibility of reducing personal tax rates for specific categories of individuals, aiming to boost consumption in Asia's third-largest economy, according to two government sources cited by Reuters.

This potential tax cut could be announced in July, when Indian prime minister Narendra Modi's administration presents its first federal budget after the Bharatiya Janata Party (BJP) did not secure a majority on its own.

A post-election survey indicated that voters are concerned about inflation, unemployment, and declining incomes.

Despite the Indian economy growing at 8.2 per cent in 2023-24, consumption has only grown at half that rate.

Modi, while forming the National Democratic Alliance government, stated that his administration would focus on increasing middle-class savings and improving their quality of life.

A reduction in personal tax could stimulate consumption and boost middle-class savings, the sources indicated, requesting anonymity due to the confidentiality of budget discussions.

India's finance ministry did not respond immediately to an email seeking comment.

Individuals earning over 1.5 million rupees (£14,151.66) annually may receive some tax relief, up to a certain amount yet to be determined, said the first source to Reuters..

The proposed changes could affect a tax scheme introduced in 2020, where annual income up to 1.5 million rupees (£14,151.66) is taxed at 5-20 per cent, while earnings over 1.5 million rupees (£14,151.66) are taxed at 30 per cent.

The personal tax rate increases six-fold when income rises from 300,000 rupees (£2,830.33) to 1.5 million rupees (£14,151.66), "which is quite steep,” said the second source to the news agency.

The government might also consider lowering tax rates for annual incomes of 1 million rupees (£9,434.44), said the first source, adding that a new threshold is being discussed for income taxed at the highest rate of 30 per cent under the old tax system.

Any reduction in government tax revenue from these cuts could be partially offset by increased consumption from higher earners, the second source said to Reuters.

The federal government aims for a fiscal deficit of 5.1 per cent of GDP for the financial year ending March 2025.

Strong tax collections amid a robust economy and a significant dividend from the central bank will provide the government flexibility in planning its first budget of the new term, Reuters previously reported.

(Reuters)