Middle-class taxpayers are expected to get a big relief from the government. There are reports that the government may reduce the tax liability on annual salaries up to Rs 10.5 lakh in this budget. It can be announced in the upcoming budget to be presented on 1 February 2025.

The proposal aims to boost consumption amid a slowing economy and rising inflation. Currently, income from ₹ 3 lakh to ₹ 10.5 lakh is taxed at 5% to 20%, while income above ₹ 10.5 lakh is taxed at a rate of 30%.

Option to choose from 2 regimes

Old regime: This includes exemptions like house rent and insurance.

New regime (2020): Which comes with lower tax rates but most exemptions are removed.

Through the proposed reduction, the government wants to encourage more people to adopt the 2020 structure.

Economic and political context
According to reports, India's GDP growth was the weakest in seven quarters in July-September 2024. At the same time, food inflation has put pressure on the income of urban families, affecting the demand for vehicles, household goods, and personal care products. Experts believe that if this proposal is implemented, consumers will have more disposable income in their hands, which can accelerate India's economic activity.

Government's position
According to sources, the decision to finalize the size of the tax cut and other details will be taken closer to the budget date. However, the Finance Ministry has not yet made any official statement about this proposal or the impact on revenue due to it. It is believed that the loss of revenue to the government will be compensated as more people join the new regime.

Benefit expectations
If this proposal is implemented, millions of taxpayers will get relief. This move will give impetus to economic activities as well as fulfill the objective of the government to adopt a simplified tax structure.

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