The Union government is reportedly considering significant income tax cuts for individuals earning up to ₹15 lakh, with the potential changes expected to be announced in the 2025-26 Union Budget, according to a media report. Citing two government sources, Reuters revealed that the size of the tax cuts is still undecided, with a final decision likely to be made closer to the budget presentation on February 1. If implemented, this move would provide much-needed relief to India's middle class, particularly amid the ongoing economic slowdown and rising living costs.
India's income tax system offers two regimes: the Old Tax Regime (OTR) and the New Tax Regime (NTR). The OTR allows taxpayers to claim deductions and exemptions, such as those for insurance, provident funds, and housing loans. For individuals below 60 years of age, the OTR tax slabs are as follows: income up to ₹2.5 lakh is exempt from tax; income between ₹2.5 lakh and ₹5 lakh is taxed at 5%; income between ₹5 lakh and ₹10 lakh is taxed at 20%; and income above ₹10 lakh is taxed at 30%.
Introduced in 2020, the New Tax Regime offers lower tax rates but eliminates exemptions and deductions. Under the NTR, income up to ₹3 lakh is tax-free; income between ₹3 lakh and ₹7 lakh is taxed at 5%; income between ₹7 lakh and ₹10 lakh is taxed at 10%; income between ₹10 lakh and ₹12 lakh is taxed at 15%; income between ₹12 lakh and ₹15 lakh is taxed at 20%; and income above ₹15 lakh is taxed at 30%. Given that a significant portion of India's income tax revenue comes from individuals earning at least ₹10 lakh, any reduction in taxes or exemptions could make the NTR more attractive.
A potential tax cut would likely benefit salaried individuals by reducing their tax burden, thus increasing disposable income and boosting consumer spending. This could play a crucial role in supporting economic recovery amid the current slowdown. The move comes at a time when the middle class is facing criticism over high taxes, rising inflation, and wage stagnation.