Budget 2025: Will income tax be cut on income up to Rs 15 lakh? Middle class expected to get relief in Budget 2025

The Indian government is considering cutting income tax rates on income up to Rs 15 lakh in the February budget, which will provide relief to the middle class and boost consumer spending.

The Indian government is considering cutting income tax for individuals earning up to Rs 15 lakh annually in the budget to be presented in February, a move expected to provide relief to the middle class and boost consumer spending as the country's economy slows down. Two government sources told Reuters the decision could benefit millions of urban taxpayers grappling with high living costs if they switch to the 2020 tax system that does not offer exemptions such as house rent.

Under this system, annual income between Rs 3 lakh and Rs 15 lakh is taxed at 5% to 20%, while income above this is taxed at 30%.

Taxpayers in India can choose between two types of tax systems - an old scheme, which allows exemptions such as house rent and insurance, and a new system introduced in 2020, which has slightly lower rates but does not allow major exemptions.

The sources, who asked not to be named because they were not allowed to speak to the media, said no decision had been taken yet on the size of the cuts. A decision would be taken about a week before the budget, they said.

The Finance Ministry did not immediately respond to a request for comment.

While there was no mention of any reduction in income tax revenue despite the reduction, sources said the reduction in tax rates would make more people adopt the new system as it is simple and convenient.

India gets most of its income tax from individuals earning above Rs 10 lakh, who are taxed at 30%.

More money in the hands of the middle class could boost the Indian economy, which is the world's fifth largest and saw its slowest growth in seven quarters between July and September. High food inflation is also hurting demand for products ranging from soaps, and shampoos to cars and two-wheelers in urban areas.

Along with this, political pressure is mounting on the government regarding higher taxes on the middle class, as salary hikes are not keeping pace with the inflation rate.

PC:Latestly