Income tax relief provided for in the Union Budget coupled with RBI repo rate cut put together will boost recovery in consumption in the economy, asserted Finance Minister Nirmala Sitharaman. At a press conference on Saturday after her customary post-Budget meeting with the Central Board of Directors of the RBI, Sitharaman said industry is clearly seeing the signs of a possible recovery of consumption.
She added all her post-Budget interactions with industry and journalists give her a sense that the consumption sentiment had improved. “Since after the budget, the few inputs that I’ve had from some business leaders and some senior journalists who have been interacting with business is that (though these are anecdotal)… Most of it seem to be on the same page that the orders for fast moving consumer goods for the period April to June are already getting booked, and industry is clearly seeing the signs of a possible recovery of consumption,” the minister said.
As a result of fresh demands, Sitharaman said that many businesses were looking at reviewing the capacity utilization. “I see it a positive sign, and with yesterday’s decision of the RBI (the reduction of repo rate), I’m sure together, things can move in alignment,” she further said.
In Union Budget for 2025-26 tabled on February 1, the finance minister had announced that no income tax will be payable on income up to Rs 12 lakh, providing significant relief to taxpayers, especially the middle class. Earlier, this limit was Rs 7 lakh.
An estimated one crore middle-income Indian taxpayers will be out of tax net. As a result of these tax relief proposals, the government will forego revenue of about Rs 1 lakh crore in direct taxes and Rs 2600 crore in indirect taxes.
Income Tax Relief & What Else?
The government expects that taxpayers saving money through lesser income tax will plough it back in the economy in form of either consumption, savings or investments.
On top of that, on Friday, the monetary policy committee of the RBI unanimously lowered the repo rate by 25 basis points from 6.5% to 6.25%. Policy stance was kept at neutral to allow the MPC flexibility on future path of policy action.
This was the first-rate cut in about 5 years. The repo rate is the interest rate at which the Reserve Bank of India lends to commercial banks. Lending rates and EMIs are all linked to this key interest rate. Talking about the new Income Tax Bill, Sitharaman, during the press conference today, said the Cabinet has cleared the new income tax proposal on Friday.
“(I) hope to have it introduced in the Lok Sabha in the coming week,” she said. Post the introduction, it will go to a committee for scrutiny. “The process is the committee gives its recommendation, it comes back, and then the government, through the Cabinet, takes a call whether these amendments are to be taken in, or some of them, or more need to be. It’s only after that it again goes to the parliament. So once the parliament passes, it is when they decide on when best to roll it out from,” she added. She didn’t give a definite timeline for the rollout of the new income tax framework.
In July 2024 Budget, the government had proposed a comprehensive review of the Income-tax Act, 1961. The purpose was to make the Act concise and lucid and reduce disputes and litigation.
