By Manoj Kumar and Swati Bhat
NEW DELHI (Reuters) -The Indian government on Saturday announced the biggest tax relief in at least a decade to boost consumer demand to revive growth in the world’s fifth-largest economy, giving a huge relief to millions of households grappling with high inflation.
India’s economic growth is expected to slow to a four-year low this fiscal year due to weak demand, particularly in urban areas where the cost of living has soared.
The new structure will increase disposable incomes, boosting household consumption, savings and investment, Finance Minister Nirmala Sitharaman said in her annual budget speech.
WHAT ARE THE CHANGES?
An individual with an annual income of up to 1.28 million rupees ($14,800) will not have to pay any tax, up from the current cap of 700,000 rupees.
The change, however, is applicable only to those filing returns under the new tax regime. This system, introduced in 2020, has slightly lower tax rates but does not allow major exemptions.
Taxpayers can also opt for the legacy plan that allows exemptions for housing rentals or loans, and insurance premiums and other such expenses.
WHAT HAS HAPPENED TO THE TAX SLABS?
Currently, under the new system, annual income of up to 1.5 million rupees (about $17,300) attracts a tax rate of between 5% and 20%, while income of more than that is taxed at 30%.
Now, the 30% tax, the highest rate, will be applicable on annual income above 2.4 million rupees.
HOW MUCH WILL AN INDIVIDUAL SAVE?
Taxpayers earning up to 1.2 million rupees a year are also eligible to claim a standard deduction of 75,000 rupees in the new system.
Now, after the tax cut, this group will pay about 80,000 rupees less tax each year, the government estimated.
Tax analysts said those earning 2.5 million rupees a year will pay about 343,000 rupees in tax, less than the 457,000 rupees they pay currently.
This translates to about 5% more money in their hand and a monthly saving of around 9,500 rupees, a substantial relief for taxpayers, said Adhil Shetty, CEO, BankBazar.com.
HOW MUCH WILL THE GOVERNMENT LOSE?
The government estimated it would forego revenue of around 1 trillion rupees a year due to the tax relief and 10 million additional people will no longer be required to pay any taxes.
WHAT IS THE GOVERNMENT’S AIM?
The hope is that the tax cuts would lead to higher consumption, savings and investments in the economy, finance secretary Tuhin Kanta Pandey said at a briefing.
Apart from that, the government expects the new tax slabs to encourage more people to shift to the new tax system. It estimates 75% of taxpayers filed taxes under the new system in 2024-25. ($1 = 86.5360 Indian rupees)
(Reporting by Manoj Kumar and Swati Bhat; Editing by Savio D’Souza)
