Income Tax Cuts for Middle Class: A Big Relief in Budget 2025?

The Indian government is reportedly planning income tax cuts for the middle class, specifically for individuals earning up to ₹15 lakh annually. This move, part of the upcoming Union Budget 2025-26, aims to boost disposable income and stimulate economic growth. If implemented, millions of urban taxpayers could benefit significantly.

Simplified Tax Regime in Spotlight

The proposal is expected to promote the 2020 tax system, which offers lower tax rates but removes exemptions like housing rentals. The simplified slabs under this system are:

• ₹0–₹3 lakh: No tax
• ₹3–₹7 lakh: 5%
• ₹7–₹10 lakh: 10%
• ₹10–₹12 lakh: 15%
• ₹12–₹15 lakh: 20%
• ₹15 lakh and above: 30%

Reducing income tax rates under this regime could simplify the process for taxpayers and make the system more appealing.

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Economic and Political Impact

India’s economy has faced challenges, with growth slowing over the past seven quarters. High food inflation has also dampened consumer spending, affecting sales of essential goods and automobiles. Income tax cuts for the middle class could address these issues by increasing spending power.

At the same time, policymakers face the challenge of balancing relief for taxpayers with maintaining revenue from individuals earning over ₹10 lakh annually, who contribute significantly to income tax collections.

The government’s decision on the extent of these cuts is likely to come closer to February 1, 2025, when the Union Budget is announced.

This proposed tax reform could not only alleviate the financial burden on the middle class but also provide a much-needed push to economic activity.

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