Income Tax Relief in Budget 2024? Govt Plans to Boost Consumption

The Indian government is reportedly considering rationalizing the current income tax structure, particularly for lower-income earners, to stimulate consumption.

According to a report from The Indian Express, the Budget 2024 may prioritize tax cuts for low earners over welfare spending. These tax cuts are viewed as a more effective way to increase disposable income, thereby boosting consumption and economic activity.

The report highlighted concerns about the steep rise in marginal income tax rates. In the new tax system, the first 5% tax slab starts at Rs 3 lakh. However, by the time income reaches Rs 15 lakh, the tax rate jumps to 30%. Thus, while income increases fivefold, the tax rate increases sixfold, which is considered excessively steep.

The proposed tax cuts are expected to boost consumption, which is crucial for reviving demand and restarting the investment cycle, particularly in consumer-focused sectors. Additionally, this move could help increase GST collections.

Business Today could not independently verify the report.

The Budget for the fiscal year 2024-25 is likely to be presented in Parliament in late July. Finance Minister Nirmala Sitharaman is expected to begin pre-Budget discussions with industry groups around June 20, with a meeting with Revenue Secretary Sanjay Malhotra scheduled for June 18.

The upcoming Budget will outline the economic agenda of the Modi 3.0 government. Sitharaman aims to stimulate growth without increasing inflation while securing resources for coalition government commitments. The agenda seeks to position India as a USD 5-trillion economy soon and transform the nation into a ‘Developed India’ by 2047.

The Reserve Bank of India projects a 7.2 percent growth for the Indian economy this fiscal year, driven by improving rural demand and easing inflation. The Modi 3.0 government inherits a robust economy with established fiscal discipline, further boosted by the RBI’s highest-ever dividend of Rs 2.11 lakh crore for FY24.

Key priorities for Prime Minister Modi’s third term include addressing agricultural challenges, job creation, sustaining capital expenditure, and increasing revenue growth to maintain fiscal consolidation. Rating agency S&P has upgraded India’s sovereign rating outlook to positive, reflecting approval of the economic policies over the past decade. There is potential for a further rating upgrade in the next 1-2 years if the government meets its fiscal deficit targets.

While tax revenues are strong, non-tax revenue remains a challenge due to limited progress in strategic disinvestment, apart from the sale of Air India.