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Budget 2024: 56% ET readers want income tax cuts to be a weakened task of BJP govt
“Nothing is certain except death and taxes” – This is perhaps what many Indians are saying as prices continue to rise and they are seeking a change in income tax rates. With Modi 3.0 coming in with a weaker mandate, many believe that an income tax cut could help the saffron party navigate the current scenario. This sentiment is echoed by India Inc. as well, adding to the urgency of letting Indians have more cash on hand and boosting consumption demand. In the run-up to the Budget, ET Online conducted a survey to get a sense of what India is looking for in the upcoming Budget. The survey received responses from nearly 9,500 Economic Times readers.
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Over 56 per cent Indians believe that a reduction in income tax is what Finance Minister Sitharaman should prioritise following the BJP’s weakened mandate. Over 37 per cent want the government to address the growing jobs crisis. Only four per cent suggested offering more cash transfer schemes to farmers and just two per cent opted for allocating more funds to railways.
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When it comes to rationalisation of income tax slabs, over 53% want the government to shift Indians to the new tax regime with exemptions for income up to Rs 15 lakh.
Over 20 per cent want the government to increase exemptions under Section 80C and other sections in the old tax regime, while over 14 per cent demand extension of Section 80C benefits to the new tax regime. Over 11 per cent expect the government to increase tax rates for higher brackets and reduce rates for lower brackets.
Budget, taxes and exemptions
Direct tax collections so far in FY25 have seen a robust increase of nearly 20% over the previous year, totalling Rs 5.74 lakh crore. This increase is primarily driven by significant growth in personal income tax contributions, which totalled Rs 3.61 lakh crore.
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During the interim budget announced on February 1, 2024, the finance ministry projected that income tax collections would rise to Rs 11,56,000 crore in 2024-25, reflecting an increase of 13 per cent. The revised estimate for 2023-24 is 13.5 per cent higher than the budgeted figure of Rs 9,00,575 crore.
“With rising prices, taxpayers are under pressure to manage their needs within available resources. Recent budgets have limited the tax benefits to taxpayers who use the Simplified Tax Regime. Even today, there is a sizeable population of taxpayers who opt for the old tax regime and have not seen much tax cuts in the last 2-3 years. Hence, a rate cut for such taxpayers will definitely ease their burden,” said Aarti Raote, Partner, Deloitte India.
In the absence of significant tax proposals in the February 2024 interim budget, taxpayers are hopeful for positive changes in the upcoming budget. With the Minister of Finance Nirmala Sitharaman With the budget set to be presented on July 23, expectations are high. Amid rising retail inflation, easing financial pressures on the common man would be a welcome move.
Rohit Garg, partner at Shardul Amarchand Mangaldas & Co., said, “A tax rate cut will have a positive impact on India’s growing economy as a reduction in personal income tax will result in higher disposable income, which can lead to higher demand from individuals, leading to an increase in overall GDP. A cut in personal tax rates is long overdue.”
The enigma of consumption
India Inc is also advocating for tax relief amid concerns over the consumption conundrum, which is crucial to boosting the country’s economic growth. Lowering income tax rates could help boost India’s lagging consumption levels, which in turn could boost corporate profits and stimulate the overall economy.
Given the government’s significant reduction in corporate tax rates in recent years and its incentives for the manufacturing sector — which have led to higher investment and supply — a cut in personal tax rates would further strengthen the demand side, Garg added. In addition, lower tax rates would help the government expand its tax net, encouraging individuals currently outside the tax net to comply with their tax obligations.
A personal income tax cut would be a step in the right direction to boost the demand side as it would give individuals more disposable income, leading to higher consumption, he said. The impact of inflation on high commodity prices could be offset by the increased income left in the hands of individuals due to the reduction in tax rates.
But can an income tax cut ease India’s sluggish consumption levels amid rising price pressure?
To this, Raote said, “Tax relief alone cannot revive the economy as there are several other factors that need to be taken into account. However, a rate cut can definitely ease the tax outflow for the common man.”
In a note, KPMG noted that as personal expenses increase, there is a widespread expectation of an increase in standard deduction from Rs 50,000 to Rs 1 lakh. Further, to increase disposable income for spending on consumer goods or savings, there is a strong expectation that the basic tax exemption limit under the new standard tax regime will be increased to Rs 5 lakh from the current Rs 3 lakh.
(Originally published July 17, 2024)