NEW DELHI (AFP) – India’s finance minister unveiled broad income tax cuts yesterday as Indian Prime Minister Narendra Modi’s government looks to bolster consumption and perk up a slowing economy.
The world’s most populous country is forecast to expand at its slowest pace since the COVID-19 pandemic in the current fiscal year, after growing at more than eight per cent last year.
Consumers have been burdened by high food inflation and weak wage growth, two factors impacting urban consumption.
“The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment,” Finance Minister Nirmala Sitharaman told Parliament while unveiling the year’s budget. “Slabs and rates are being changed across the board to benefit all taxpayers.”
The finance minister said that individuals earning an annual income of up to INR1.2 million (USD13,800) would now be effectively exempt from paying income tax.
It nearly doubles the previous tax-free threshold of INR700,000.
Cuts were also announced for a newer system introduced in 2020, with annual incomes of INR1.6 million to INR2.4 million now attracting a tax rate of between 20 per cent and 25 per cent, down from the earlier rate of 30 per cent. “The middle class provides strength for India’s growth,” Sitharaman said. The changes would result in the Indian government foregoing revenue worth INR1 trillion (USD11.5 billion), she added. India will post a deficit of 4.8 per cent of gross domestic product this financial year, below the 4.9 per cent projected during last year’s budget, likely helped by lower capital expenditure.
The benchmark Nifty index gave up initial gains it made during Sitharaman’s speech and was trading 0.19 per cent lower yesterday afternoon in a special budget trading session of the Mumbai bourse.
