Income tax payers may get a big relief in the coming days. The manufacturer may cut income tax rates to rationalize the existing income tax structure. To revive the Indian economy, which is facing the problem of declining consumption, the government may make a big announcement regarding income tax in the upcoming budget.

This claim has been made in a report by Indian Express. Sources have said that the government’s policy makers are in favor of rationalizing the existing income tax structure. For this, more tax exemption can be given to low-income taxpayers. The newly formed government of the BJP-led National Democratic Alliance (NDA) is likely to present the full budget for the financial year 2024-25 by the third week of July.

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Two government officials said the government is likely to prioritise income tax rate cuts for low-income earners over freebies and excessive welfare spending as it focuses on fiscal consolidation. Tax cuts may be a more effective measure to increase disposable income, resulting in increased consumption and boosting economic activity, officials said. People will have more money in their hands, which will lead to increased consumption and an increase in direct and indirect tax revenues. So even if a cut in income tax rates leads to a reduction in revenue, the net impact will be positive.

The tax structure is not rational

An official said that the review of the current tax structure has revealed that the current tax structure is not rational. The tax increase on marginal income is very high. In the new tax regime, the first slab of 5% starts from an income of Rs 3 lakh. When the income reaches Rs 15 lakh, that is, increases five times, the marginal tax rate increases from 5% to 30%. That is, the rate of income tax increases six times. This increase rate is very high.

It is important to increase consumption

An official said that it is important to boost consumption to revive demand. It plays a very central role in restarting the investment cycle and reviving private capital expenditure, especially in consumer-centric sectors. This can also increase GST collection. Another official said, “This way (by rationalizing income tax) you will unlock consumption. There will be more disposable income, which means more consumption, more economic activities, more GST collection.”

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One of the main reasons for this is that the Lok Sabha elections are to be held next year, in view of which the central government can make populist announcements. The Union Finance Minister will present the budget from 11 am on Wednesday.

It is noteworthy that since 2014, there has been no change in any slab regarding income tax exemption. That’s why it is expected that the government can end the drought of 9 years this time. However, in the 2020 budget, Finance Minister Nirmala Sitharaman had announced to implement a new alternative tax system.

Income tax rates likely to be simplified 

In Budget 2020, Finance Minister Nirmala Sitharaman announced a new alternative tax regime with higher tax slabs and lower tax rates. But the tax payers did not get much relief from the new tax system. Therefore, the demand for reducing the tax rate applicable to individual taxpayers still remains, as there is a huge difference between the corporate and personal tax rates.

Increase in Basic Exemption For individuals up to the age of 60 years, income up to Rs 2.5 lakh is tax free. For taxpayers in the age group of 60-80 years and for those above 80, the exemption limit is Rs 3 lakh and Rs 5 lakh respectively. Many tax experts believe that it needs to be increased.

According to Archit , founder and CEO of tax and investment platform Clear, it has been almost a decade since the exemption limit was amended. Archit Gupta believes that taxpayers are expecting relief in the form of either an increase in the basic exemption limit from Rs 2.5 lakh to Rs 5 lakh or a reduction in tax rates. He said that taxpayers also expect that deduction under section 80C and 80D will be increased.

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