Finance Minister Nirmala Sitharaman is reportedly mulling significant relief for India’s lower-income earners with tax cuts for the first time in seven years. The tax cuts are believed to be part of a consumption-boosting package worth nearly $6 billion in the upcoming Budget, a Bloomberg report has claimed.
The move will reportedly benefit individuals earning between Rs 5 lakh to Rs 15 lakh, who currently face tax rates of 5%-20%. The report further said the Centre may go for a new tax bracket. Details, however, are still under discussion, and a final decision will be made closer to the Budget announcement, expected on July 18. Despite potential revenue losses from these tax changes, the government is committed to maintaining its fiscal deficit target of 5.1% of GDP for the current financial year, the report added.
Boosting Support for Farmers and Women
Discussions include raising the annual cash payment to small farmers from Rs 6,000 to Rs 8,000, increasing payments under the minimum job guarantee program, and expanding financial support for women farmers. Finance Minister Nirmala Sitharaman is conducting pre-budget consultations with stakeholders, including economists, trade unions, and industry chambers. Local media suggests that the budget announcement could be on July 22.
Industry associations such as CII in pre-Budget discussions with the Revenue Secretary have suggested providing a marginal relief in income tax at the lower end of the spectrum with taxable income up to Rs 20 lakh as one of the measures to boost consumption demand.
For individual taxpayers, one of the major concerns has been the rise in tax collections from them, which has in fact recent years exceeded the mop-up from corporate income tax. In 2023-24, net corporate tax collections amounted to Rs 9.11 lakh crore while net personal income tax collections amounted to Rs 10.44 lakh crore. Similarly in 2022-23, corporate tax collections stood at Rs 8,25,834 crore and the personal tax kitty was Rs 8,33,307 crore.
Experts however, note that while there is a case to provide some tax relief to individuals, companies often pay tax at a much higher rate than individuals. Neeraj Agarwala, Partner at Nangia Andersen India said that the tax collected from corporations is at a much higher rate than from individuals, making a direct comparison between the two groups unfair.
“If we examine the income tax return statistics issued by the Income Tax Department for the past five years (AY 22-23 to AY 18-19), we find that, on average, only 1.41% of the returns are filed by corporations. These corporations, however, declare an average of 30% of the total gross income and account for 48% of the total tax collection,” he said.
In comparison, individuals file approximately 94% of the returns, declaring an average of 65% of the total gross income but with an aggregate tax liability of only 42%. “This means that, despite similar tax collection figures from corporations and individuals, corporations contribute income tax at an average tax rate of 24% of the total gross income, while individuals’ tax rate stands at 10%,” he pointed out.
However, from an individual taxpayer’s perspective, there exists a frustration with limited tax deductions and confusion surrounding the tax regime with marginal tax reliefs, he noted, adding that the expectations from the Union Budget should be to provide tax deductions that reflect modern expenses and offer respite to homeowners. While lower tax rates may alleviate some burden on taxpayers, the focus should be on providing deductions to those who need them, he said.
“The tax structure should encourage deductions for investments rather than promoting an alternate tax regime for individuals without such deductions. The exemption of Rs 1 lakh for long-term capital gains is also not investor-friendly, leading many individuals to resort to tax harvesting to save on taxes,” he pointed out.
