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India's upcoming Budget 2025 is generating considerable anticipation, particularly regarding potential tax relief measures for salaried taxpayers. The government is under pressure to stimulate economic growth and address the slowdown in GDP, exacerbated by the rising cost of living. Experts widely believe that injecting more disposable income into the hands of taxpayers, thereby boosting consumption, is crucial for reviving the economy. Tax relief is seen as the most effective tool to achieve this objective. This is further underscored by the fact that India experienced a loss of growth momentum in Q2, necessitating urgent action from the government to confront these emerging economic challenges. The proposed revisions to tax slabs, offering benefits to individuals earning up to ₹15 lakh annually, directly target the millions of middle-class taxpayers, a significant portion of the Indian population.
Two key proposals have emerged that could significantly benefit the salaried class under the new tax regime. The first involves exempting annual incomes up to ₹10 lakh from taxation. This would provide substantial relief to a large segment of the population. The second proposal suggests introducing a new 25% tax slab for incomes ranging from ₹15 lakh to ₹20 lakh. The implementation of these changes would not only enhance the attractiveness of the new tax regime, potentially encouraging greater adoption, but also directly contribute to increased consumer spending and economic stimulation. While these measures represent significant steps towards providing relief, a more holistic approach might be necessary to maximize their effectiveness.
Swapnil Aggarwal, Director of VSRK Capital, argues that the new tax regime's success hinges on integrating certain features from the older system, particularly the widespread deductions and exemptions previously available. He emphasizes the importance of incorporating long-term savings and retirement planning incentives into the new regime, thereby encouraging responsible financial behavior among taxpayers. Aggarwal envisions a model that combines the simplicity of the new tax rules with the flexibility and benefits of the old system. This synthesis, he believes, would align perfectly with the broader objectives of taxpayer relief, community security, and sustainable investments. Such a comprehensive approach, incorporating elements from both old and new regimes, could foster greater investor confidence, expand tax incentives, and promote more holistic economic development, aligning with the overall priorities of the budget.
The potential impact of these proposed changes is multifaceted. Firstly, the direct financial relief to taxpayers would increase disposable income, leading to higher consumer spending and bolstering economic activity. This, in turn, could stimulate growth in various sectors, creating a ripple effect throughout the economy. Secondly, a simplified and more attractive tax regime could enhance compliance and reduce tax evasion, increasing government revenue in the long run. Thirdly, the inclusion of incentives for long-term savings and retirement planning could contribute to a more financially secure and stable population, further strengthening the economic foundation. However, the government needs to carefully consider the potential trade-offs and ensure that the proposed changes are fiscally responsible and sustainable in the long term. A thorough cost-benefit analysis and impact assessment would be crucial before implementing these significant changes.
Ultimately, the success of Budget 2025's tax reform hinges on its ability to deliver meaningful relief to taxpayers while ensuring the fiscal health of the nation. The government faces a delicate balancing act, aiming to stimulate the economy without compromising its financial stability. The proposed changes, while promising, need to be implemented with meticulous planning and consideration of all potential consequences. The integration of elements from both the old and new tax regimes, as suggested by experts, could pave the way for a more comprehensive and effective approach, leading to a sustainable and inclusive economic growth trajectory for India.
Source: New income tax regime has better tax rates, but what's missing?