Budget 2024: Income tax changes on cards? Report says govt may cut rates to push consumption

The Narendra Modi-led central government, which will present its first Union Budget following the general election results, may slash income tax rates in a bid to boost consumption, according to a report.

The Centre is considering to reduce the taxation rate in the highest tax slabs under the old and new income tax regimes, news agency Reuters reported, citing persons who are privy to the development.

Under the new tax regime, the highest tax slab of 30% is imposed on annual income above ₹15 lakh. This rate is expected to be reduced to a point which is yet to be determined, one of the sources told the publication.

Notably, the taxation rate rises six times – from 5% to 30% – as income rises from ₹3 lakh to ₹15 lakh per annum, under the new tax regime.

Another source told Reuters that the government may also lower the 30% tax imposed on annual earnings above ₹10 lakh under the old tax regime.

The shortfall in tax collection on account of reduced taxation rates would be compensated, as the reduction in rates would boost consumption, one of the sources further told the news agency.

However, there is no official announcement in this regard. A clarification or response was also yet to be issued in response to the news report.

Old tax regime vs new tax regime

Under the old tax regime, the taxation rates are higher, but the assesses are allowed to claim more reductions through various savings instruments. Under the new regime, the taxation rate is lower, but there are only a few options to claim reductions.

The tax slabs under the new regime are as follows:

• ₹3-6 lakh – 5% (Tax rebate under Section 87/A)
• ₹6-9 lakh – 10%
• ₹9-12 lakh – 15%
• ₹12-15 lakh – 20%
• ₹15 lakh and above – 30%

The tax slabs under the old regime are as follows:

• ₹2.5-5 lakh – 5%
• ₹5-10 lakh – 20%
• ₹10 lakh and above – 30%

The Union Budget is expected to be presented by Finance Minister Nirmala Sitharaman in July. While the official date is yet to be announced, the Economic Times reported last week that the government may call the Monsoon Session of Parliament from July 22 onwards, and the budget would subsequently be tabled in the House.