Amid uproar over high taxation, the Indian government is reportedly considering a major relief for middle-class taxpayers, especially for those earning up to INR 15 lakh annually (US$ 17,590). Reports in Indian media claimed that the move can be announced in the budget for 2025 on February 1, aimed at boosting consumer spending amid a slowing economy.

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The proposed move will also help tackle high cost of living crisis, as urban taxpayers have long complained of rising expenses and taxation. 

What’s current tax regime?

As per the latest income taxation regime announced in 2020, incomes ranging from 3 lakh to 10.5 lakh attract tax rates between 5 per cent and 20 per cent. Those earning more than 10.5 lakh have to pay a staggering 30 per cent tax. 

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Today, Indian taxpayers have the option to choose from two regimes: The older one, which offers exemptions for expenses like housing rentals and insurance; and the newer one which offers lower taxation rates but eliminates most of the exemptions.

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Now, if the proposed tax relief is offered, more people will rush to adopt the simplified 2020 regime.

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The reports clarify that the government, led by Prime Minister Narendra Modi, has not yet decided on the size of the cut or relief yet. The finance ministry or Minister Nirmala Sitharaman has not made any comment on these reports.

Indian economy slows down

The changes to Indian taxation system are being considered amid concerns over rising economic challenges. The GDP growth rate between July and September in 2024 stumbled to the lowest in past seven quarters.

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The food inflation is on the rise as well, further leading to cost of living crisis. A decline in the sale of goods like vehicles, household items, and personal care products also indicate worrying trends for the economy. By offering tax relief, the government wants to boost spending and fuel growth.

(With inputs from agencies)