Pre-Budget talks: CII pushes for personal income tax cuts on salary up to ₹20 lakh/year

Representatives of India Inc on Monday pressed for a reduction in personal income tax rates to boost disposable incomes and spur consumption.

"From a perspective of boosting consumption, we have suggested that there be some relief provided to income tax up to ₹20 lakh on the marginal income tax rate so that it boosts consumption, there is more disposable income and in turn also leads to buoyancy in revenues," Puri said.

The CII also called for a reduction in excise duty on petroleum products.

"That will also provide higher disposable income to consumers and create a virtuous economic cycle," he added.

PHDCCI President Hemant Jain said, "The suggestion we made to the government was reduction in personal income tax so that there can be more money in the hands of people and that can spur the demand and reduce inflation. We have also asked for GST simplification."

The Union Budget for the fiscal year 2025-26 is scheduled to be presented by Sitharaman on February 1 amid expectations of measures to address growth and inflation challenges.

Top government officials including the finance secretary, chief economic adviser, secretary of DIPAM (Department of Investment and Public Asset Management), and Secretaries of the Department of Economic Affairs were present at the pre-Budget consultation meeting.

If implemented, the proposed measures are expected to benefit crores of taxpayers, particularly in urban areas grappling with rising living costs. However, the potential tax cuts are likely to be applicable only to those opting for the new tax regime introduced in 2020.

The new regime offers lower tax rates but requires taxpayers to forgo traditional exemptions and deductions, such as those for provident funds, home loans, and insurance premiums. Currently, individuals can choose between the old regime, which provides these benefits, and the new structure with reduced rates but fewer perks.

India, though among the fastest-growing major economy, witnessed a slowdown in GDP growth in the July-September period, hitting a seven-quarter low. Elevated food inflation has further strained household budgets, dampening demand for goods ranging from essentials to vehicles.

Injecting more disposable income into the hands of the middle class through tax relief could provide a much-needed consumption boost for the world's fifth-largest economy. The Reuters report suggests that the government is also aiming to encourage a larger shift toward the new tax regime by cutting personal income tax rates.