The government is thinking of reducing income tax for people who earn up to Rs 15 lakh per year, said Reuters in a report. This move can benefit millions of taxpayers, especially living in urban areas. The upcoming Union Budget 2025-26 may provide relief to the middle class and boost consumption, Reuters cited government sources. According to the report, millions of people could benefit from this move if they choose the 2020 tax system, which does not allow certain exemptions like housing rent deductions.
Under that system, income between Rs 3–15 lakh was taxed at 5-20%, with income higher than that drawing 30%.
Here’s how the new tax system works:
- Income up to Rs 3 lakh: 0% tax
- Rs 3–7 lakh: 5% tax
- Income up to Rs 7–10 lakh: 10% tax
- Rs 10–12 lakh: 15% tax
- Rs 12–15 lakh: 20% tax
- Income Above Rs 15 lakh: 30% tax
Indian taxpayers now have a choice between these two different tax systems.
Other details of these two tax options:
- Old plan: You can claim exemptions on rent and insurance.
- New plan (2020): Lower tax rates, but fewer exemptions. It’s simpler.
Income Tax Relief: What Else We Know?
The government hasn’t yet decided how much to cut taxes, said the report. Moreover, a decision may be made closer to the budget announcement on February 1. Meanwhile, most of India’s income tax comes from individuals who earn Rs 10 lakh or more, which is taxed at a rate of 30%. Furthermore, India’s economy, which is the fifth-largest in the world, grew at its slowest pace in seven quarters (July-September).
Experts say that to boost the economy, increasing middle-class income could help. However, high food prices are hurting demand for many goods, from basics like soap and shampoo to cars, especially in cities. In current time, government is facing pressure from the middle class, who feel they are paying too much in taxes, said the report.
