Finance Minister Nirmala Sitharaman is considering raising the income limit for tax levy to ₹5 lakh from the current ₹3 lakh in the upcoming Budget 2024. This move aims to stimulate consumption among low-income individuals by implementing tax cuts, as reported by Moneycontrol. By increasing the threshold, the government aims to bolster disposable income, thereby boosting economic growth through increased spending.
Focus on New Tax Regime
The proposed changes will apply exclusively to taxpayers opting for the New Tax Regime introduced in Budget 2020, which became the default tax system in Union Budget 2023. This regime offers lower tax rates but eliminates most deductions and exemptions, making it more attractive for taxpayers seeking simplicity and lower tax liability.
Potential Reduction in Tax Slab Rates
In addition to raising the income threshold, the Modi 3.0 government is contemplating reducing the highest individual income tax slab rate under the new tax regime from 30% to 25%. This adjustment responds to industry demands and aims to further incentivize taxpayers to adopt the new tax structure. Notably, adjustments to higher income tax slabs are unlikely at this stage, as the government prioritizes boosting consumption among lower-income groups.
Strategic Delay in Tax Bracket Increases
Furthermore, the government may postpone hikes in the highest tax bracket (currently at 30% for incomes exceeding ₹10 lakh). This strategic move is intended to encourage taxpayers to transition to the new tax regime, which offers reduced rates and simplified tax filings without extensive deductions.
Conclusion
The proposed tax reforms in Budget 2024 underscore the government’s commitment to enhancing disposable income for lower-income individuals and stimulating economic activity through increased consumption. By revising tax thresholds and rates under the New Tax Regime, the government aims to create a more favorable tax environment while maintaining fiscal prudence.
